Re Carpenter International Pty Limited [2016] VSC 118 (24 March 2016)

CONTRACT - Competing contracts - 'Battle of the forms' - Which set of terms applies.

CONTRACT - Conditions as to formation - Conditions as to performance.

PERSONAL PROPERTY SECURITIES - Defendants registered their interests on the Personal Property Securities Register- Whether security interests perfected by registration - Were registrations in time - Personal Property Securities Act (2009) (Cth), s 267.

1 These proceedings are about the ownership of certain cattle. In short, who owns (in the sense of having legal and beneficial title to) the cattle? The various disputes about the ownership of the cattle arise because of the terms of agreements (and, specifically, which terms apply), whether a particular party held a security interest in the cattle and, if so, whether any such security was registered in time.

2 Carpenter International Pty Ltd ('Carpenter') was in the live cattle export business. Its business involved purchasing cattle through a del credere agent, then moving the cattle to a feedlot for quarantine and testing and, finally, subject to those checks, exporting the cattle.

3 Administrators were appointed to Carpenter on 24 March 2015. The administrators are the plaintiffs in this proceeding. They filed an originating process dated 26 May 2015 seeking orders and directions under ss 442C and 447D of the Corporations Act 2001 (Cth) ('the Act') and/or the Court's inherent jurisdiction. They sought orders giving them leave to dispose of the cattle, with any sale proceeds to be dealt with in accordance with several conditions, and directions that they are justified in proceeding on the basis that Carpenter is the absolute legal and beneficial owner of the cattle.

4 The defendants appearing in this proceeding were creditors of Carpenter. They were Dairy Livestock Services Pty Ltd ('DLS'), Charles Stewart & Company Pty Ltd ('CS'), Charles Stewart Nash McVilly Pty Ltd ('CSNM'), and GG Feedlot Pty Ltd ('GG Feedlot').

5 DLS, CS, and CSNM are livestock agents. They act as del credere agents for the vendor farmers, so they guarantee the purchaser's payment of the purchase price. The agents receive a commission, and if they pay the vendors, they take assignment of the vendors' rights under the sale contracts. DLS, CS and CSNM contend that they have perfected security interests in some of the cattle and, accordingly, Carpenter has no rights to those cattle.

6 There was no appearance before me, nor were any submissions made, by any other party. However, it falls upon the Court to consider the issues in relation to other cattle.

7 On 19 August 2015, GG Feedlot filed an Interlocutory Process seeking declarations that it has a perfected security interest in the cattle located on its feedlot, pursuant to a contract with Carpenter. It also seeks declarations that its perfected security interest has priority over any other party's claims to the cattle. GG Feedlot's sole concern is that the primacy of its security interest is recognised. It is to be noted that GG Feedlot's application was adjourned.

8 The matter came on for trial on 24 August 2015. During the trial, the administrators were given leave to file their Further Amended Originating Process dated 25 August 2015.[1] The Further Amended Originating Process contains various schedules which set out details of various contracts, being Schedules A, B, D, and E. GG Feedlot's application concerns some cattle which is described as 'Schedule A' and possibly 'Schedule E' cattle to which I will later refer.[2] DLS, CS and CSNM are not concerned with Schedule A or Schedule E cattle. It is therefore convenient to deal with DLS, CS and CSNM's claims in the first instance. Their claims concern Schedule B cattle.

9 On 29 September 2015, I made orders giving the administrators leave to dispose of cattle, subject to conditions in relation to the sale proceeds. All the cattle the subject of this proceeding have now been sold, by either Carpenter or GG Feedlot. Given the cattle have been sold, the dispute now concerns entitlement to the sale proceeds.

10 On 29 September 2015, I reserved my decision on the ownership and security interest issues. These reasons will address those ownership and security interest issues as between Carpenter and the del credere agents, namely DLS, CS, and CSNM and the agents referred to in the schedules to the Further Amended Originating Process. These reasons will not address what security interest, if any, GG Feedlot has in any of the cattle, nor the lawfulness of any actions it has taken to sell certain cattle.

How ought the respective claims to the cattle be categorised?

11 To determine Carpenter's and the agents' respective rights to the sale proceeds, it will be necessary to determine their rights to the cattle after the administrators were appointed. As referred to, the administrators have grouped the cattle into four categories:

(a) Schedule A cattle. These cattle were not the subject of any registration on the Personal Property Securities Register ('PPSR') before the administrators were appointed.

(b) Schedule B cattle. These cattle were the subject of registration on the PPSR before the administrators were appointed. They were also the subject of contracts, sometimes constituted by multiple signed sets of terms.

(c) Schedule D cattle. These cattle were the subject of contracts, sometimes constituted by multiple signed sets of terms. These cattle were rejected by Carpenter during the purchase process.

(d) Schedule E cattle. These cattle were the subject of contracts comprising only Carpenter's standard terms.

12 For the reasons set out below, after the administrators were appointed to Carpenter, in my opinion, title to the four categories of cattle was as follows, subject to resolution of GG Feedlot's claims:

(a) Carpenter had title to the Schedule A cattle;

(b) Carpenter had title to the Schedule B cattle;

(c) Carpenter had title to the Schedule D cattle;

(d) Carpenter had title to the Schedule E cattle.

13 The questions in this case can be divided up and answered according to the four categories of cattle, as Carpenter has done. However, it would be convenient for me to start with the claims of DLS and CS/CSNM which are centred on the cattle in Schedule B. I will firstly address the issues raised by DLS followed by the issues raised by CS/CSNM before returning to the other categories of cattle the subject of the application and the direction sought by Carpenter regarding the equitable lien on cattle.

'Battle of the forms' - what were the terms of the contracts? - DLS and Carpenter

14 Both Carpenter and DLS referred to this issue as the 'battle of the forms' so, for convenience, I will adopt that terminology in this judgment. The issue to be determined is what terms formed part of the contract governing the transactions entered into by Carpenter and DLS.[3] There was, in some instances, more than one form - which prevails or are they able to sit together? In particular, and most significantly, did those terms include the retention of title clauses in the DLS contracts? This clause forms the critical foundation of the claim of DLS.

15 Numerous affidavits were filed on behalf of Carpenter on which they sought to rely as follows:

(a) the affidavit of Matthew James Donnelly sworn 22 May 2015 ('first Donnelly affidavit);

(b) the affidavit of Matthew James Donnelly sworn 25 June 2015 ('second Donnelly affidavit');

(c) the affidavit of John Edward Berkefeld sworn 3 July 2015 ('first Berkefeld affidavit');

(d) the affidavit of Matthew James Donnelly sworn 8 July 2015 ('third Donnelly affidavit');

(e) the affidavit of John Edward Berkefeld sworn 7 August 2015 ('second Berkefeld affidavit');

(f) the affidavit of Matthew James Donnelly sworn 10 August 2015 ('fourth Donnelly affidavit').

16 Carpenter submitted that there were 76 transactions entered into by Carpenter and DLS. Carpenter accepted that for 61 of those transactions, only a DLS contract was executed, and the DLS terms therefore apply.[4] In 11 transactions both a DLS contract and a Carpenter contract were signed. Therein lies the so-called 'battle of the forms'. Carpenter submitted that for those transactions, its terms should prevail.[5] It appears that DLS contracts were not signed for the remaining transactions.

17 In this case, there are two entire and apparently comprehensive signed agreements sitting side by side.[6] Both contracts were signed. The significance of both contracts being signed is analysed in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd.[7]

18 Carpenter submitted that the DLS contracts were signed first, and the Carpenter contracts were signed immediately thereafter, but Carpenter then seemed to accept that the timing of the contracts is not a matter of great concern.[8] The primary battle of the forms argument pressed by Carpenter was based on clause 2 of the Carpenter contracts as, it was contended, clause 2 is the only way to 'unlock' the 'two duelling documents'.[9] Clause 2 of the Carpenter contracts provided:

Legal Agreement: These Terms and conditions together with the Livestock Purchase Contract and any other documents provided by Carpenter International which relate to the sale of the Livestock make up the agreement between the Vendor and Carpenter International for the purchase of Livestock by (the Agreement). The Agreement shall not include any terms and conditions of the Vendor or its agent including (without limitation) the Vendor's tax invoice or purchase summary, even if received by Carpenter International after this Agreement is delivered to the Vendor. These Terms and Conditions shall apply to all future sales of Livestock from the Vendor to Carpenter International unless expressly excluded.

19 Carpenter submitted that this clause establishes that it ought succeed in the battle of the forms.[10] Clause 2 gives paramountcy to the Carpenter terms, and allows the Court to hold that the Carpenter terms prevail, even if the vendor agent terms are signed.[11]

20 The objective theory of contract holds that contracts providing for paramountcy must be given effect to. There was a signed contract with an entire agreement clause, and the subcontractors' subjective purposes in having a document to prove the number of cattle purchased and obtain the appropriate remuneration, does not change the objective fact that the parties signed a contract. Carpenter also argued that it and DLS did not contract on consistent terms, so it could not be said that the regularity of dealings would be such that where there is a battle of the forms clause 2 of the Carpenter contract is displaced.[12]

21 DLS relied upon McMahon v National Foods Milk Ltd.[13] In response, Carpenter argued that clause 2 purports to single out, or at least expressly identify, the vendors' terms as being excluded.[14] This means clause 2 is effective to prevent enforcement of the collateral contract. Carpenter relied on the following passage quoted in McMahon:

Ultimately, the resolution of the issue must depend on intention as to the scope of the entire agreement clause. Arguably, if the clause refers expressly to collateral contracts that should be sufficient statement of intention that a collateral contract may not be put forward [as] an additional express term of the bargain. But if there is no express reference to collateral contracts, it seems odd to regard a clause in the main agreement as effective to prevent enforcement of the collateral contract...[15]

22 Carpenter submitted that although clause 2 seeks to exclude any vendor agent terms completely, the aim is to look for a harmonious result, and the Court will therefore seek to reconcile the two sets of terms.[16] For this reconciliation process Carpenter relied on Butler Machine Tool Co Ltd v Ex-Cell-O Corp (England) Ltd.[17] Where terms of the competing contract are not inconsistent with the Carpenter contract, they may be included in the terms governing the transaction. The del credere provisions of the agents' contracts are an example of provisions that are not inconsistent with the Carpenter contracts. When provisions are inconsistent, however, the Carpenter provisions, it was submitted, should prevail.

23 The retention of title clauses in the vendor agent contracts constitute the prime example of provisions that are inconsistent with the Carpenter contracts. The retention of title clauses are inconsistent with clauses 4(l) and 4(m) of the Carpenter contract, which provided:

l) Upon delivery of the Livestock, Carpenter International shall have the right to enter the premises where the Livestock is held in order to inspect the Livestock and may, in its sole discretion, reject any Livestock that do not comply with terms of the Agreement ("Inspection"). It shall be the responsibility of the Vendor and at the cost of the Vendor to remove the rejected Livestock. The Parties agree that the Livestock shall not be deemed accepted by Carpenter International until Carpenter International has carried out its Inspection.

m) Risk in the Livestock shall remain with the Vendor until Carpenter International has completed the inspection upon which point risk and title in the Livestock accepted by Carpenter International shall pass to Carpenter International.

24 The argument that the retention of title clauses did not form part of the contract between the parties was said to be further supported by the fact that in all but two of the 76 transactions involving Carpenter and DLS, the vendor signed a Vendor Declaration and Instruction form ('VDI') and returned it to Carpenter.[18] The signing of the VDIs fortifies the application of the Carpenter contract where there is a battle, because the VDIs were part of the Carpenter contractual relationship.[19] The Carpenter contract required that the VDIs had to be signed and returned.

25 The Carpenter contracts and VDIs provided for Carpenter rejecting cattle that did not meet the further testing in quarantine, and without the Carpenter and VDI terms forming part of the terms governing the transactions, Carpenter would not be entitled to reject cattle; it would have to accept and pay for all cattle that passed the initial blood testing and were moved to quarantine.[20] The handwritten annotation 'subject to China Protocols' on the DLS contracts does not confer the right of rejection that was in fact exercised by Carpenter.

26 As an alternative, Carpenter submitted that looking at the transactions as a whole, and the conduct of the parties, the retention of title terms should not be considered to be part of the contractual terms governing the transactions on the basis of Dwyer v Chicago Boot Co Pty Ltd.[21] Carpenter, however, did acknowledge that Dwyer is of limited assistance here because the retention of title term there was printed on the back of an invoice and not on a contract signed by the purchaser. Further, Dwyer dealt with conduct and incorporation of terms over a period of time.[22]

27 DLS relied on affidavit of Scott Lord sworn 28 July 2015.

28 In summary, DLS sought various orders for declaratory relief, namely:

(a) a declaration that the DLS pro forma contracts prevailed as between it, Carpenter and the vendor farmers, alternatively that certain critical terms (as DLS saw it) formed part of any agreement between those parties;

(b) a declaration that DLS had perfected its registered security interest under s 588FL of the Act within time; and

(c) that, as a result, DLS is the absolute legal and beneficial owner of the cattle the subject of the agreements.

29 In DLS' submission, the questions to be addressed in this battle of the forms issue are only of contractual construction.

30 The process of signing the DLS contracts was as follows. DLS made arrangements for the inspection of cattle at vendor farmer properties. There were various combinations of parties present at inspections. There was DLS and Carpenter, DLS alone acting as agent for Carpenter, or DLS and a subcontractor of Carpenter.[23] Once cattle had been selected, the following took place in every case:

(a) a price for the cattle was negotiated and cattle numbers confirmed;

(b) a DLS standard form contract was completed and signed by or on behalf of the vendor, Carpenter, and DLS as agent.[24] These contracts were signed at the place where the cattle were inspected, on the day of inspection. The contracts were tripartite, with the vendor, Carpenter, and DLS as parties;

(c) property of origin declarations and diseases forms were completed by the vendors; and

(d) Carpenter provided ear tags which were placed on the selected cattle.[25]

31 When Carpenter acted through an employee, only a DLS contract was signed.[26] Where Carpenter engaged a subcontractor to attend the inspection, then and only then, a Carpenter contract was signed by or on behalf of one or more of the vendor, Carpenter, and DLS as agent.[27] Sometimes the Carpenter contract was signed only by or on behalf of Carpenter.

32 DLS submitted that, based on the evidence of Mr Lord and Mr Bond, the better view is that the Carpenter contracts and the DLS contracts were all signed contemporaneously at the farm.[28] DLS submitted that the only way to make commercial sense of these two contracts sitting together is to conclude that, in the context where a Carpenter subcontractor signs Carpenter's terms, that document only operates as evidence of an administrative arrangement between Carpenter and its subcontractor. In short, it was contended, the Carpenter contract is simply a document on which the subcontractor may rely to demonstrate to Carpenter the number of head of cattle that have effectively been 'signed up', thus forming the basis for the subcontractor's entitlement to commission.[29]

33 Mr Lord's evidence was that in his experience, the vendor, DLS and Carpenter referred to the DLS contract not the Carpenter contract, when referring to the terms of the agreement between them.[30] DLS also argued that the fact that the Carpenter contract was only signed when a subcontractor was involved was an 'objective background fact known to both parties'.[31]

34 On DLS' case, the purpose of the DLS contracts was to govern the tripartite transaction, and the purpose of the Carpenter contracts, as I have observed, was to enable the subcontractor to go back to Carpenter and prove how many cattle the subcontractor had signed up, and be remunerated accordingly.[32]

35 The Carpenter contracts, it was contended, were a form of external verification of the sale, and they guarded against subcontractors fraudulently seeking payment from Carpenter.[33] A concession was made that the evidence of this alleged purpose of the Carpenter contracts was not overwhelming.[34] DLS submitted that on Carpenter's case, there is only a purpose for the Carpenter contracts being signed, not a purpose for both sets of contracts being signed.[35] Given DLS' argument gives purpose to both contracts, in my opinion, it should be preferred to Carpenter's construction.

36 DLS submitted that where a DLS contract was signed by all parties and a Carpenter contract was signed only by Carpenter or a Carpenter subcontractor (that is, not by all the parties), only the DLS terms apply to the transaction. This is because the Carpenter terms were not accepted by the vendor or DLS.[36] In such cases, the Carpenter contract only had effect, it was submitted, between the parties signing it.

37 In the limited portion of transactions where the DLS contract and Carpenter contract were both properly executed, DLS contended that only the DLS contract applies, because:

(a) if Carpenter intended the Carpenter contract to form all or part of its purchase agreements, it would no doubt have sought that a Carpenter contract be signed by all parties for all transactions. Instead, the Carpenter contract was only used when Carpenter was represented by a subcontractor;

(b) viewed objectively, it makes little sense that on the rare occasion Carpenter was represented by a subcontractor, the terms of the tripartite agreement would be radically different and that important terms for DLS would be entirely excluded;

(c) the Carpenter contract did not contain critical terms of the tripartite agreement, including terms in respect of DLS' status and rights as del credere agent, DLS' commission rates, and the retention of title clause. It would be a commercial nonsense for DLS to pay the vendors if rights of assignment were not included in the terms of the agreement.[37] In this context, the 'entire agreement' clause in the Carpenter contract makes little sense. The Carpenter contract may be the entire agreement between Carpenter and its subcontractors, but it cannot be the entire agreement between Carpenter, DLS and the vendors;

(d) DLS did not consider that the Carpenter contract was intended to contain the terms of the purchase agreement. Rather, DLS considered the Carpenter contract to be administrative and used by Carpenter and its subcontractors to calculate the commission payable on a particular transaction. Only the DLS contract contemplates and deals with the tripartite situation;

(e) elements of the Carpenter contract suggest it was not intended to regulate the tripartite relationship, such as the definition of 'parties' as 'both' Carpenter and the vendor farmer. The Carpenter contracts did not contemplate the role played by DLS in the tripartite arrangement, namely that Carpenter would pay DLS and DLS would pay the vendors. The del credere agent paying the vendor farmer was a background fact known to both parties; and

(f) the completion of the DLS contract by Carpenter in every purchase transaction seems inconsistent with Carpenter's contention that the DLS contract was considered to be of no effect. There were no cases in which a DLS contract was not completed.[38]

38 Relying on MLW Technology Pty Ltd v May,[39] DLS argued that the modern approach to contractual construction is to look at the matter objectively from the point of view of an honest business person, to proceed in a common sense, non-technical way, and to avoid an uncommercial construction.[40] In about 80 per cent of the contracts, there is no contest that the DLS terms apply. DLS then asked, viewing the matter as a reasonable business person would, why would different terms apply to the tripartite arrangement whenever Carpenter acted through a subcontractor? There would be no commercial purpose being served by there being separate terms in that situation.[41] The construction that makes most commercial sense is that the Carpenter contracts did not affect the legal relationships between the three parties.[42]

39 If, however, the Carpenter terms applied, DLS argued, in the alternative, that the entire agreement clause in the Carpenter contracts did not oust certain critical terms in the DLS contracts. For this argument DLS relied on McMahon, in which Nettle JA held that:

It seems that the view which has been taken in England is that a merger provision should generally be treated as applying to agreements which might otherwise operate as collateral contracts. And at one level, the logic of that approach is appealing. If business persons were asked as a matter of principle what is meant by an entire agreement clause, they would probably reply that it means what it says. Shorn of surrounding circumstances, the idea that an entire agreement clause should not be taken to extend to a collateral contract because the latter is a separate contract would possibly be thought of as quaint. But lawyers must beware of generalities. In an age of contractual development which puts contextual interpretation ahead of formalism, each case is unique. The question in each case is what the merger clause in question "would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract".[43]

40 In this case, the entire agreement clause in the Carpenter contracts must be viewed in its own unique context. Three parties deliberately and carefully signed another contract at the same time and the Carpenter contracts were only signed when Carpenter acted through a subcontractor.[44]

41 As I have observed, DLS' principal submission was that in the circumstances of the execution of the DLS contracts and Carpenter contracts (which included an entire agreement clause), the Court ought conclude that the Carpenter contracts have effect only as between Carpenter and its subcontractors.[45] As between Carpenter, the vendors and DLS, the Carpenter terms, it was contended, have no legal operation. Alternatively, if the Carpenter contracts apply, the 'entire agreement' must be interpreted to include terms of crucial importance to the vendors and DLS such as the del credere and retention of title clauses in the DLS contracts.[46] DLS accepted that this argument, based on McMahon, was more difficult.[47]

42 In the relatively small number of transactions where there is a battle of the forms, in my opinion, the DLS terms prevailed, including the retention of title clause. This is so for the following reasons.

43 During trial I asked why DLS did not, when the subcontractor produced the Carpenter contract for signing, say that in about 80 per cent of transactions a Carpenter contract was not signed and DLS did not intend to sign one just because Carpenter was acting through a subcontractor.[48] The only answer provided was that, viewed objectively as a tripartite arrangement, the Carpenter terms do not make sense, and a reasonable business person would not think that the terms of the tripartite arrangement should or would change where a subcontractor was involved.[49] DLS repeated its submission that the only commercially sensible construction available is that the Carpenter contract was intended to regulate and confirm the agreement between Carpenter, its subcontractor and DLS as to the number of cattle.[50]

44 Viewed objectively, the subcontractor must have some interest in being able to prove the number of cattle being purchased. It was submitted that it 'would border on commercially absurd to have a different contractual arrangement for the 20 per cent of cases where there's a sub-contractor than for the 80 per cent, where no one can point to any evident commercial purpose for that'.[51] DLS also highlighted the absence of an explanation by Carpenter as to why it only had a Carpenter contract signed when it acted through a subcontractor.[52]

45 As I have indicated, in my view, where there is a battle of the forms, the DLS terms prevailed, including the retention of title clause. As DLS submitted, and I agree, the Carpenter contracts were only used when Carpenter acted through a subcontractor and the Carpenter contracts were not intended to be binding as between the vendor, vendor agent, and Carpenter. Carpenter did not provide an explanation for why the Carpenter contracts were only signed when it acted through a subcontractor. In my opinion, the better view is that the terms governing the transactions were the DLS terms as well as the terms in the VDIs.

46 I reject Carpenter's alternative argument based on Dwyer. Where only DLS contracts were signed, Carpenter conceded that the retention of title clauses applied. Where there was a battle of the forms, Carpenter argued that looking at the parties' conduct, the retention of title clauses should not be considered to form part of the governing terms. The conduct relied on in this alternative argument was conduct other than signing the Carpenter contract.

47 Carpenter did not submit that the conduct of the parties in transactions governed by DLS terms alone differed from the conduct of the parties in transactions the subject of a battle of the forms. It appears that after signing the contract or contracts, the conduct of the parties in relation to retention of title was consistent in all transactions. If the conduct of the parties in transactions governed by DLS contracts alone did not result in the retention of title clauses not forming part of the governing terms, it is difficult to see how such conduct could achieve that result in the other transactions. It would be artificial to find that the conduct of the parties in a relatively small handful of transactions resulted in retention of title terms not forming part of the contract, while not making the same finding in relation to 61 other transactions where the parties conducted themselves similarly.

48 In reaching this conclusion, I have had regard to the evidence of Mr Lord in his affidavit of 28 July 2015 and the terms of the DLS contracts, in particular, clauses 3, 6, 10, 18 and 25.

Did DLS' security interest vest in Carpenter under s 588FL of the Act?

49 It is not disputed by Carpenter that the retention of title clauses amount to a security interest under the Personal Property Securities Act 2009 (Cth) ('the PPSA').

50 The key issue to be determined as between Carpenter and DLS is whether the security agreement that 'gave rise' to DLS' security interest, 'came into force' within 20 business days before DLS registered that security interest on the PPSR. If it did, s 588FL of the Act does not apply to DLS's security interest. If it did not, s 588FL does apply and DLS' security interest vests in Carpenter. DLS did not seek any extension of time under s 588FM.

51 Resolution of this issue turns on the meaning of the expression 'the security agreement that gave rise to the security interest came into force' in s 588FL(2)(b)(ii) and whether the security agreement that gave rise to the security interest was the DLS contract or the act of DLS paying the vendor. It is not in dispute that if the security agreement in essence was the act of DLS actually paying the vendors, then each security interest was registered in time and did not vest under s 588FL.[53] It also appears not to be in dispute that if the security agreement was the DLS contracts (as opposed to payments thereunder), then each security interest was not registered in time and therefore vested under s 588FL.

Scope

(1) This section applies if:

(a) any of the following events occurs:

...

(ii) an administrator of a company is appointed under section 436A, 436B or 436C;

...

and

(b) a PPSA security interest granted by the company in collateral is covered by subsection (2).

(2) This subsection covers a PPSA security interest if:

(a) at the critical time, or, if the security interest arises after the critical time, when the security interest arises:

(i) the security interest is enforceable against third parties under the law of Australia; and

(ii) the security interest is perfected by registration, and by no other means; and

(b) the registration time for the collateral is after the latest of the following times:

(i) 6 months before the critical time;

(ii) the time that is the end of 20 business days after the security agreement that gave rise to the security interest came into force, or the time that is the critical time, whichever time is earlier;

(iii) if the security agreement giving rise to the security interest came into force under the law of a foreign jurisdiction, but the security interest first became enforceable against third parties under the law of Australia after the time that is 6 months before the critical time - the time that is the end of 56 days after the security interest became so enforceable, or the time that is the critical time, whichever time is earlier;

(iv) a later time ordered by the Court under section 588FM.

Vesting of security interest in company

(4) The PPSA security interest vests in the company at the following time, unless the security interest is unaffected by this section because of section 588FN:

(a) if the security interest first becomes enforceable against third parties at or before the critical time - immediately before the event mentioned in paragraph (1)(a);

(b) if the security interest first becomes enforceable against third parties after the critical time - at the time it first becomes so enforceable.

53 The term 'security agreement' is defined in s 10 of the PPSA as meaning:

(a) an agreement or act by which a security interest is created, arises or is provided for; or

(b) writing evidencing such an agreement or act.

54 In Re Appleyard Capital Pty Ltd,[54] Brereton J made the following observations about the operation of ss 588FL and 588FM:

Broadly, the effect of s 588FL(2) is that when a company is being wound up, an administrator has been appointed or a deed of company arrangement executed, any PPSA security interest which was perfected, registered, or enforceable against a third party after the latest of 6 months before the critical time or 20 days after the security agreement came into force or such later time as the court may fix under s 588FM, vests in the company, for the benefit of creditors generally, and the secured creditor loses the benefit of the security.

...

...If the collateral is registered within 20 days after the security agreement comes into force, the security interest prevails over the interest of unsecured creditors, even if the company goes into liquidation or administration within 6 months. However, if it is not registered within that period, and the company goes into liquidation or administration within 6 months after it is registered, then the security interest vests in the company for the benefit of creditors generally - unless a later time is fixed under s 588FM. In other words, the effect of not registering within 20 days is to expose the secured creditor to the loss of its security if the company goes into liquidation within 6 months of the actual date of registration, when otherwise the security would have been effective even in the event of liquidation or administration within 6 months. Essentially, the purpose and effect of an order under s 588FM is to avoid the vesting of the security interest in the company if it goes into liquidation or administration within 6 months after the actual date of registration, and thereby preserve the secured creditor's security, to the necessary detriment of the unsecured creditors for whose benefit the security interest would otherwise vest in the company. The only utility of such an order is in the event that the company does go into liquidation or administration within 6 months.[55]

55 Section 267 of the PPSA is not relevant as between Carpenter and DLS because DLS registered its security interests on 16 March 2015, so 'clearly DLS got in before administration'.[56]

Carpenter's submissions about DLS' security interest

56 Carpenter submitted that DLS' security interest vested in it pursuant to s 588FL. As to the meaning of 'security agreement' Carpenter relied on Central Cleaning Supplies (Australia) Pty Ltd v Elkerton.[57] It was submitted that the utility of the decision in Elkerton is in its approach to the interpretation of the expression 'created, arises or is provided for'. Carpenter also submitted that Elkerton involved an umbrella contract between supplier and purchaser, whereas this case is concerned with individual contracts because the vendor varies in each transaction.[58] I will return to the decision in Elkerton below.

57 In this case, the relevant security agreements which effectively provide for the grant of a security interest are the DLS contracts. The latest DLS contract is dated 4 February 2015, more than 20 business days before registration occurred. As DLS did not register on the PPSR within 20 business days of the date of any of the DLS contracts, so Carpenter says, its security interests vested in Carpenter under s 588FL.

58 Carpenter agreed that if DLS is correct in saying that the 20 business day period commences from the dates of the assignment of rights to DLS by the vendors on payment under the contracts, and not the dates of the DLS contracts themselves, then each security interest was registered in time and did not vest in Carpenter under s 588FL.[59] However, Carpenter argued that DLS' position is untenable.

59 If DLS is asserting that it has a valid security interest perfected by registration, it must meet the requirements of ss 19, 20 and 21 of the PPSA in order to make good its claim.[60] Under s 21(1)(b)(ii) of the PPSA, a security interest must be enforceable against a third party before it may be perfected by registration. For DLS' security interest to be enforceable against a third party, the security agreement must be evidenced in writing signed by the grantor or adopted by the grantor. This is required by s 20(1) and (2) of the PPSA. The only security agreement that fits that description is the signed DLS contract.[61] Although an act may amount to a security agreement under s 10, the act of paying the vendors is not a written agreement and therefore cannot establish a security interest enforceable against a third party.[62] Accordingly, for the purposes of s 588FL(2)(b)(ii), the DLS contracts were the 'security agreement that gave rise to the security interest'. This means, in my view, that the 20 business day period is calculated from the contract date and not any subsequent act or assignment.

60 On the issue of assignment, Carpenter submitted that subsequent assignments of security interests do not alter the requirement to register within 20 days after the security agreement comes into force. If assignments did have that effect, the registration system would be open to abuse because a 'sort of musical chairs of assignments can alter the start time' of the 20 day period.[63] DLS could have registered at the date of the DLS contracts, or before, to protect its interest, without contravening s 151 of the PPSA. Carpenter submitted that this is supported by ss 161 and 162 of the PPSA.[64] Further, s 21(4) of the PPSA provides that a single registration can cover multiple arrangements and be effective.

61 As to the alleged need to be precise about the collateral the subject of the security interest, Carpenter submitted that the form of PPSR registration usually employed and in fact employed by DLS only requires a description of the class of collateral and DLS' own description of the cattle.[65] It is not the case that DLS could not register until it could be specific about individual cattle. The fact that some cattle might be rejected did not prevent a registration.[66] DLS could and should have registered on the execution of the contracts.[67] The fact that something else needed to happen before DLS could enforce its interest against Carpenter did not mean that DLS' interest was incapable of registration at the time of executing the DLS contracts.[68] Further, given the almost invariable practice of DLS paying the vendors and taking assignment of their rights, it would not have been reckless under s 151(1) for DLS to register a security interest at the time of signing the DLS contracts.[69]

62 Finally, Carpenter submitted that the relationship of del credere agent does not create a security interest in addition to the retention of title clause.[70]

63 DLS submitted that it did not have a security interest until it paid the vendors for their cattle. The vast majority of those payments occurred on 9 or 10 March 2015. In his affidavit the director of DLS, Scott Lord, set out the payments made by DLS to the vendors, in the period in or about 25 February 2015 to 17 March 2015.[71] At that time, the vendors' rights, including the retention of title clause, were assigned to DLS. DLS could then, and only then, it was said, register its security interest on the PPSR. As DLS registered its security interest within 20 days of paying the vendors, it perfected the security interest by registration and s 588FL does not apply.

64 DLS put its position in this way. 'Security agreement' is defined in s 10 of the PPSA as an agreement or act by which a security interest is created, arises or is provided for; or writing evidencing such an agreement or act. In this case, DLS paying the vendors was the act by which the security interest was created or arose, because the security interest was assigned from the vendor to DLS at that point and not before. The security interest therefore arose or was created on the dates of payment by DLS to the vendors. The security agreement was the act of payment, rather than a written agreement, so DLS had 20 business days from the dates of payment to perfect its interest by registration, and it did so.

65 DLS submitted that Carpenter's position should not be accepted for six reasons. First, when entering into the DLS contracts, DLS did not have a security interest to register because the benefit of the retention of title clause lay with the vendors alone. Until DLS paid the vendors and the benefit was assigned to DLS, there was no security interest for DLS to register. Until DLS paid the vendors, it only had a contingent security interest.[72] In trial DLS accepted that it may have been possible to register its contingent interest at the outset, but argued that it still had the right to register upon paying the vendors.[73]

66 Second, DLS' contingent security interest was not identifiable at the time it entered into the DLS contracts. The number and identity of the cattle that were finally sold to Carpenter were not known until after various tests had been performed and Carpenter informed DLS of the final numbers. Carpenter informed DLS of the final numbers in late February to early March 2015, at which point DLS was able to begin paying the vendor farmers.

67 Third, s 151(1) of the PPSA says that a person must not apply to register a financing statement unless the person believes on reasonable grounds that the person described in the statement as the secured party is, or will become, a secured party in relation to the collateral. Civil penalty provisions apply for a breach of s 151(1). It would have been reckless for DLS, it is submitted, to register its possible contingent security interest before it had some certainty that the interest would arise.

68 Fourth, the purpose of the PPSR is to provide for certainty of dealing, which purpose would be undermined by parties seeking to register any possible or contingent security interest.

69 Next, pt 5.6 of the PPSA provides for amendments in certain circumstances, so if the vendor and DLS each registered a retention of title security interest over the same property, there may be demands for DLS' contingent registration to be removed.

70 Finally, just because s 21(4) of the PPSA allows for multiple security interests to be perfected in a single registration, does not mean that it is reasonable or even possible for the vendors and DLS to register their respective interests in a single registration.

71 As to the terms of s 588FL, DLS argued that the key phrase in s 588FL is 'came into force'. Critically, s 588FL(2)(b)(ii) uses the expression 'came into force' and not 'was executed' or 'was entered into'.[74] If s 588FL(2)(b)(ii) were intended to operate so that a person must register at the outset in order not to be burdened with the consequence of somebody else's fault, it would say so.[75] It does not say so; it says 'came into force'. When looking at s 588FL, the Court should be careful not to construe legislation as interfering with contractual rights unless it is very clear that that is what Parliament intended.[76] That statutory construction argument appeared to be rooted in the principle of legality.

72 DLS submitted that its approach to registration was reasonable in the circumstances, and that no other approach was open to it. In trial DLS conceded that this submission was overreaching.[77]

73 For the reasons that follow, in my opinion, Carpenter's submissions must be accepted and preferred to those of DLS.

74 In this case it is not in dispute that the retention of title clause in the DLS contracts provides a security interest for the purposes of the PPSA.[78] Clause 3 of the DLS contracts provides that where delivery is made to or possession is obtained by Carpenter or its representative before the purchase price is paid in full:

(a) Carpenter does not acquire title to the livestock;

(b) Carpenter holds the livestock as trustee for the vendor farmer; and

(c) Carpenter must act in a fiduciary capacity in its relationship with the vendor farmer.

75 DLS, as del credere agent, paid the vendors and took assignment of the rights of the vendors under the DLS contracts. This was reflected in clauses 25.1 and 25.2 of the DLS contracts, which provided:

The Agent acts as del credere agent unless otherwise indicated in the Contract Particulars.

Where the Agent is acting as a del credere agent, the Vendor and the Purchaser agree that if the Agent pays to the Vendor the Price in full less commission then the rights of the Vendor under this Agreement shall be assigned to the Agent to do anything the Vendor could do under this Contract...

76 It was not argued that the DLS contract particulars indicated otherwise. As contemplated by clause 25.2, DLS did pay the vendors the purchase price in full less commissions, and it took assignment of the benefit of the retention of title clause.

77 The Court was not taken to any authorities on the operation of s 588FL in cases of assignment. In Future Revelation Ltd v Medica Radiology & Nuclear Medicine Pty Ltd[79] there had been an assignment of the security interest. It was submitted that the 20 day period in s 588FL(2)(b)(ii) was said to expire 20 days after the original security deed was executed, not 20 days after the assignment. The security interest was registered within 20 days of the original security deed being executed, so it was not necessary to consider whether the assignment established a new security interest for the purposes of s 588FL. Nor was it necessary to consider whether a new 20 day period commenced upon assignment. While often of assistance,[80] decisions of New Zealand and Canadian courts are unlikely to be helpful in this case because there are no provisions in those jurisdictions equivalent to s 588FL.[81]

78 The retention of title clause is the basis of the security interest in this case. The next question is what security agreement created, gave rise to or provided for that security interest. In Elkerton the Court of Appeal considered the definition of 'security agreement' in s 10 of the PPSA. The Court was required to decide whether a credit application was or gave rise to an agreement that provided for the granting of security interests in cleaning equipment supplied to the respondent after the credit application was submitted. If it did, it was a transitional security agreement within the meaning of s 307 of the PPSA. The credit application stated that the supply of goods by the seller was governed by the seller's standard terms and conditions. Those standard terms and conditions included a retention of title clause, which appeared on the back of the invoices for each equipment order, but did not appear in the credit application.

79 On the definition of security agreement, most significantly, the Court held:

Although "security interest" is defined by reference to transactions, "security agreement" is not. Instead, the latter definition speaks of "an agreement" or "an act" by which a security interest "is created, arises or is provided for". On ordinary principles of interpretation, the legislature must have intended that each of these alternatives - "is created", "arises" and "is provided for" - has its own work to do.

...

In the first of these, the genesis of the security interest is to be found in the agreement or act itself. The entering of the agreement, or the doing of the act, "creates" the security interest. An example of this would be a contract for the sale of the goods which itself includes a retention of title clause. That is an agreement which creates the security interest in the vendor of the goods. By contrast, an agreement or act will "provide for" a security interest if it makes provision for the creation of a security interest in the future and/or by some other agreement or act.[82]

80 The Court held that when the appellant supplied the first lot of equipment, it accepted the respondent's credit application and an agreement came into force that governed all future supplies of equipment.[83] By incorporating the appellant's standard terms and conditions, including a retention of title clause, that agreement provided for the grant of a security interest in relation to all future supplies of equipment. The agreement was therefore a transitional security agreement, and the security interests granted in respect of the equipment subsequently supplied were transitional security interests.[84]

81 In this case the source of the security interest is plainly the DLS contracts. The DLS contracts were agreements by which a security interest was created, arose and certainly was provided for, within the meaning of s 10 of the PPSA. DLS did not argue to the contrary. Instead, DLS argued that its security interest, in contrast to the vendors' distinct security interest, was sourced not in the DLS contracts themselves, but in the act of paying the vendors. This was said to be because at the date of the DLS contracts, DLS did not have the benefit of the retention of title clause as it was yet to be assigned. I do not agree with this argument.

82 Assignment of the benefit of the retention of title clause did not create a new retention of title clause or a new security interest. Rather, the assignment involved a transfer from the vendors to DLS of the existing rights under clause 3 of the DLS contracts.[85] Accepting DLS' argument would mean that a new 20 day period under s 588FL(2)(b)(ii) would commence each time a security interest is assigned. It would mean that the vendor could miss its 20 day window to register and therefore be vulnerable to vesting under s 588FL, but upon assignment, an assignee could register immediately after the assignment and be immune to s 588FL, thereby attaining a better position than the vendor. This is inconsistent with the nature of an assignment, which is to transfer an existing right rather than create a new right, and it is also inconsistent with s 60 of the PPSA.

83 Section 60 of the PPSA provides that 'if a security interest in collateral is transferred, the transferred interest has the same priority immediately after the transfer as it had immediately before the transfer'. This provision is consistent with the position that an assignment of a security interest does not create a new security interest, and that the 20 day period in s 588FL(2)(b)(ii) does not reset upon an assignment. If a new security interest arose upon assignment, the PPSA would unlikely grant the new security interest the same priority as the original security interest.

84 Paying the vendors was the act by which the existing security interest was transferred to DLS. It was not the act by which a security interest was created, arose or was provided for. At the time the DLS contracts were signed, the benefit of the retention of title clauses lay with the vendors alone. DLS could have investigated whether the vendors had registered their security interests before it paid the vendors. It could have refused to pay the vendors and left Carpenter liable for the purchase price under the DLS contracts. As del credere agent DLS had the option, not the obligation, to pay the vendors and take an assignment of the vendors' rights against Carpenter. Before paying them, DLS could have required timely registration by the vendors of their security interests.

85 DLS argued that its contingent security interest was not identifiable at the time it entered into the DLS contracts, so the 20 day period cannot begin to run from that time. In this case, it is incumbent upon the Court to consider s 588FL(2)(b)(ii), in combination with s 10 of the PPSA, and identify three matters: the security interest; then the security agreement that created, gave rise to or provided for that security interest; and finally, the date on which that security agreement came into force.

86 DLS contended that the identity of the cattle the subject of the security interest was not known until Carpenter advised it of 'final numbers'. DLS did not argue that the notification of 'final numbers' was either the security agreement or the date when the security agreement came into force. On DLS' own argument, the notification of final numbers is not relevant to the analysis of s 588FL(2)(b)(ii) in this case.

87 DLS may have been able to register a contingent security interest after signing the DLS contracts without infringing s 151(1) of the PPSA. I am not satisfied that had DLS registered a financing statement upon signing the DLS contracts, it could have been said that DLS did not believe on reasonable grounds that it would become a secured party in relation to the collateral.

88 Given DLS' status as del credere agent and the fact that it did (possibly regularly) pay vendors, in my view DLS would have had reasonable grounds at the time of signing the DLS contracts for believing that it would become a secured party. It must be recalled that in the context of the battle of the forms dispute, DLS emphasised that its role as del credere agent and the fact it was the one to pay the vendors, was a background fact known by all parties.

89 Registering in advance of assignment is also contemplated by s 162 of the PPSA, which provides that a 'financing statement, or a financing change statement, may be registered to reflect the transfer of a security interest, or of collateral, before or after the transfer'. DLS argued that s 162 supports its argument because it allows for registration after a transfer.[86] I reject that argument. Statements as to registration being possible do not mean that time in s 588FL(2)(b)(ii) starts to run from the date that registration is possible. Registration is still possible more than 20 days after the relevant security agreement comes into force, but this does not mean that the time in s 588FL(2)(b)(ii) begins to run at a date later than when the security agreement came into force.

90 I agree with DLS' submission that the certainty of dealing that the PPSR aims to provide would be undermined by parties seeking to register any possible or contingent security interest. However, certainty of dealing would also be undermined if the 20 day period in s 588FL(2)(b)(ii) resets upon assignment. Accepting Carpenter's submissions does not necessarily lead to parties seeking to register any possible or contingent security interest. In this case, an alternative would have been for DLS to simply have demanded that the vendors register their security interests in a timely manner, and then change the vendors' registration into its own name after paying the vendors. Section 60 of the PPSA ensures that priority is not lost when transferring security interests. There was no need for DLS to register its own security interest in addition to the vendors' registration, had the vendors registered. If the vendors did not register, DLS could have registered a contingent security interest. In such a scenario there would only be DLS' registration, not the vendors', so there would not be a multiplicity of registrations. If DLS registered an interest in time but the vendors did not, and DLS' registration were challenged, the fact that DLS' registration was the only registration immune to s 588FL would likely be taken into account when deciding whether to remove DLS' registration.

91 I reject DLS' submission that its approach to registration was reasonable in the circumstances and that no other approach was open to it. I have already outlined the other approaches that were open to DLS. Another approach would have been for DLS to apply for an extension of time to register under s 588FM, possibly on the basis that the vendors failed to register earlier due to inadvertence or some other sufficient cause.

92 DLS also made submissions in relation to the principle of legality. DLS described Carpenter's construction of s 588FL as unfairly burdening DLS with the consequences of the vendors' wrongdoing or fault and as interfering with DLS' rights.[87] In my view, construing the legislation in the way argued for by Carpenter does not interfere with DLS' contractual rights or deprive them of any contractual rights. When taking an assignment of the vendors' rights under the contracts, DLS took those rights as the vendors left them. That is, if the vendors did not perfect those rights by not registering in time, DLS took those rights in their impaired form. There has been no legislative interference with those rights and it is therefore difficult to give any credence to the submission that Parliament somehow ablated DLS' proprietary rights in the cattle.[88]

93 The legislation does not alter DLS' proprietary rights; it operates on them in whatever form of their inheritance. As DLS was not bound to take assignment of impaired rights, there is no unfairness in holding that DLS is 'burdened' by the failure of the vendors to register in time.

94 Returning now to the three matters that s 588FL(2)(b)(ii), in combination with s 10 of the PPSA, requires the Court to identify in this case. It is not disputed that the security interest is the retention of title clause in the DLS contracts. I have found that the security agreement is the DLS contracts, not the act of DLS paying the vendors. The parties have not argued that the DLS contracts came into force on any day other than the dates of execution. DLS did not argue that if the security agreement that gave rise to its security interest was the DLS contracts, those contracts did not come into force until DLS paid the vendors. Rather, DLS only argued that the security agreement that gave rise to its security interest was the act of paying the vendors. As none of the parties argued that the DLS contracts came into force on any date other than the date of execution, as I have indicated, I consider that the execution dates are the dates on which the security agreements came into force.

95 It is worth noting that had I found that upon DLS paying the vendors and taking assignment of the benefit of the retention of title clauses, a new security interest came into being, I would still have held that the 20 day period in s 588FL begins to run from the date of execution of the DLS contracts. This is because payment to the vendors by DLS and the assignment were contemplated and provided for by the DLS contracts. In Elkerton the Court of Appeal said 'an agreement or act will "provide for" a security interest if it makes provision for the creation of a security interest in the future'.[89] If the assignment created a new security interest, then the DLS contract was an agreement that provided for the creation of that security interest, and is therefore a security agreement for the purposes of s 588FL.

96 DLS did not register its security interest within 20 business days of the dates of execution of the DLS contracts. Accordingly, its security interests in the cattle the subject of the contracts to which it was a party, vested in Carpenter under s 588FL.

'Battle of the forms' - what where the terms of the contracts? - Carpenter and CS and CSNM

97 There are two issues to be determined in relation to CS and CSNM. It is to be noted that there initially appeared to be two possible sources for the security interest claimed by CS and CSNM. First, a credit application submitted by Carpenter to CS and CSNM on or about 21 January 2014. The credit application provided that if the application was accepted, all the 'General Trading Terms' as amended would be binding on Carpenter in future cattle purchases through CS and CSNM. A document entitled 'Trading Terms & Conditions' appeared on the second page of the credit application. Clause 3 of the Trading Terms provided that 'until payment of all monies owed to Charles Stewart, the Customer holds the Products as fiduciary bailee and agent for the supplier'. The question is whether this credit application constituted a security interest.

98 The second possible source for a security interest is the CS and CSNM contracts applicable to individual transactions involving Carpenter and CS or CSNM. The first issue to be determined is whether the CSNM contracts contained a retention of title clause. It is common ground that the CS contracts contained a retention of title clause.

99 For some transactions, the parties signed a Carpenter contract and a CS or CSNM contract. This is the battle of the forms and it needs to be determined what terms governed the transactions. If the CSNM contracts contained a retention of title clause, and if the CS and CSNM contracts applied to the transactions, CS and CSNM had security interests in the cattle. Carpenter conceded that in respect of 36 transactions involving Carpenter and CS, CS has a security interest.

100 Carpenter submitted that clause 3 of the credit application did not expressly provide that CS or CSNM retained title until the purchase price was paid. Accordingly, clause 3 is unlikely to give rise to a security interest.[90] Further, the credit application is a bipartite agreement that refers to CS/CSNM as supplier, whereas the ultimate transactions were tripartite arrangements involving a vendor as supplier.[91] The credit application did not cover the tripartite arrangements that in fact occurred. Clause 3 was a standard term that was not relevant to the transactions ultimately undertaken.

101 There were 53 transactions entered into by Carpenter and CS. Thirty-six of those transactions were documented only by a signed CS contract, and Carpenter conceded that for those transactions, the CS contract applies.[92] Clause 15.1 of the CS contract provided that title to the cattle did not pass to Carpenter until the purchase price was paid in full. In at least 36 transactions involving Carpenter and CS, a retention of title clause applied. Four of the 53 transactions were documented only by a signed Carpenter contract, which did not contain a retention of title clause. The remaining 13 transactions were documented by a signed CS contract and a signed Carpenter contract. In respect of those 13 transactions, Carpenter submitted that there is a battle of the forms and that the Carpenter contract prevails.

102 Carpenter submitted that it and CS did not contract on consistent terms, so it could not be said that the regularity of dealings would be such that where both contracts were signed, clause 2 of the Carpenter contract was displaced. Clause 2 of the Carpenter contract provided that the Carpenter contract should be considered to be the sole repository of contractual terms. Carpenter noted that clause 2 specifically referred to excluding the vendor's terms.[93]

103 Carpenter also submitted that in all but three of the 53 transactions the vendors signed a VDI. By executing the VDI the vendors agreed that rejected cattle would not be returned to the vendors, and vendors would instead receive a price of $200, $250 or $400 per head of rejected cattle, pursuant to the particular VDI. The VDIs fortify the position that the Carpenter terms apply in cases of a battle.[94]

104 In response to CS and CSNM's arguments on the battle of the forms, Carpenter contended that there is no 'first shot' because there are two documents sitting side by side, which were signed at the same time. Given the Carpenter, CS and CSNM contracts have the same date and were signed within a short space of time by the same people, a conclusion that because one document was signed first, it prevails, cannot be sustained. The Court must resolve how to give effect to the two contracts in a commercially sensible way.[95] The Court cannot resolve this issue simply by deciding whether one contract was signed a minute before the other.[96]

105 There were 17 transactions entered into by Carpenter and CSNM.[97] Four transactions were documented only by a signed CSNM contract, which Carpenter argued did not contain a retention of title clause. Thirteen transactions were documented by a signed CSNM contract and a signed Carpenter contract. In respect of those 13 transactions, Carpenter submitted that there is a battle of the forms and that the Carpenter contract prevails.

106 In support of its argument that the CSNM contract did not contain a retention of title clause, Carpenter submitted that CSNM conceded the CSNM contract 'did not continue onto the back of the CSNM standard sale contract'.[98] Carpenter also submitted that it was not suggested that Carpenter was ever provided with notice of the terms on the reverse side of the CSNM contract.[99] The front side of the contract did not provide[100] that the parties agree to be bound by any terms put forward by CSNM, and it did not include a retention of title clause. Carpenter contended that absent the alleged 'understanding' of Mr Bond, a former Carpenter contractor, there is nothing to suggest that Carpenter was ever informed that CSNM intended to contract on the ALPA terms.[101] Carpenter objected to the evidence as to this alleged 'understanding'.[102]

(a) an affidavit sworn 19 June 2015 by David Michael Stewart ('Stewart affidavit');

(b) an affidavit affirmed 19 June 2015 by Corey Daniel Baulch ('Baulch affidavit');

(c) an affidavit sworn 19 June 2015 by Phillip Justin McVilly ('McVilly affidavit');

(d) an affidavit affirmed 24 June 2015 by Warren Christopher Bond ('Bond affidavit'); and

(e) an affidavit affirmed 25 June 2015 by Warren Christopher Bond ('Bond B affidavit')

and the exhibits to those affidavits, numberedDMS-1 to DMS-18, CDB-1 to CDB-3, WCB-1 to WCB-4, respectively.

108 CS and CSNM submitted that the credit application was an umbrella document that covered all future transactions between Carpenter and CS and CSNM.[103] The retention of title clauses in the individual contracts merely reflected the understanding set out in the credit application that until it paid the purchase price in full, Carpenter held the cattle as fiduciary bailee and agent for the supplier. It seems, however, that CS and CSNM did not argue that the credit application created, gave rise to or provided for a security interest.[104] They sought to distinguish the case of Elkerton.[105]

109 CS and CSNM submitted that the CS/CSNM contracts were signed by all the parties first.[106] The CS/CSNM contracts contained the standard ALPA terms. After signing the CS/CSNM contracts, Carpenter's agent produced and completed a Carpenter contract, which according to his evidence, was the basis for his remuneration. The other parties then signed the Carpenter contract.

110 CS and CSNM conceded that applying a 'last shot' approach would mean the Carpenter terms prevail and CS and CSNM would not have any security interests.[107] However, while it is possible that the Carpenter contracts were intended to replace the CS/CSNM contracts, there is no language in the Carpenter contracts to that effect.[108]

111 The signing of the Carpenter contracts did not affect the existence of the contract already made on the CS/CSNM terms, unless the Carpenter terms were accepted as a variation of the prior CS/CSNM terms either expressly or by conduct.[109] CS and CSNM argued that there was no such variation.[110]

112 CS and CSNM submitted that the battle of the forms cases do not apply to this case, because here there is a concluded contract with clear terms, albeit subject to conditions precedent.[111]

113 As to the CSNM contracts, CSNM acknowledged that several terms, including the retention of title clause, were missing from the back page.[112] CSNM argued that the 'misprint' 'should not matter' because Mr Bond's evidence was that he was familiar with ALPA contracts and he was aware they contained a retention of title clause. Mr Bond was one of Carpenter's subcontractors, so his state of knowledge should be imputed to Carpenter.[113] CSNM submitted that signing the CSNM contracts in the knowledge that the terms missing from the back page formed part of the standard ALPA terms, is sufficient to incorporate the missing terms.[114] The missing terms were incorporated by reference, by a course of dealing, or by reasonable notice and were accepted on behalf of Carpenter by its agent Mr Bond. CSNM submitted that this conclusion is borne out by Mr Bond's familiarity with the terms of sale used in the industry and by CS/CSNM in particular.

114 With justification, it appears that Carpenter misunderstood CS and CSNM to be arguing that the credit application was a security agreement, and Carpenter therefore made submissions as to why the credit application form did not amount to a security agreement. CS and CSNM did not ultimately press the argument that the credit application was a security agreement for the purposes of s 588FL. This is not surprising because in disputes under s 588FL(2)(b)(ii), it benefits the secured party to argue that the security agreement is a later document, and therefore the 20 day period commences later. I need not decide whether the credit application amounted to a security agreement. Were I required to decide, I would be inclined to say that it did not, based on the wording of the credit application and the principles enunciated in Elkerton.

115 The CSNM contract did not include a retention of title clause. These are clauses, by their very essence, that create and alter the rights of parties. Accordingly, precision is required if parties intend that such clauses be incorporated into their contractual arrangements.

116 These matters ought not be left to chance or even to a presumed state of affairs based on a general knowledge of industry practices or a course of dealing in other circumstances or contexts. Commercial parties are well equipped to protect their interests and avail themselves of such protections that the law gives, should they wish to do so.

117 Mr Warren Bond acted as Carpenter's agent when dealing with CS and CSNM. In his first affidavit Mr Bond deposed that the sales contracts he signed on behalf of Carpenter when dealing with CS and CSNM were the Charles Stewart standard form contracts. He said:

Once the cows were tagged by me, Corey Baulch would fill out a sales contract bearing the CS logo ... These sale contracts were Charles Stewart standard form contracts...

... The same process and order of signing was followed when the CSNM contracts were signed. Usually I dealt with Phillip McVilly in relation to the CSNM contracts.[115]

During my dealings with CS and CSNM I have always been aware that the Charles Stewart Group use the Australian Council of Livestock Agents Limited terms ("the ALPA terms") on the Charles Stewart Group standard form contract. I am familiar with the ALPA terms as the ALPA terms are used by many agents I deal with and I am aware that the ALPA terms contain a retention of title clause.

Since affirming my earlier affidavit it has been brought to my attention that the ALPA terms on the CSNM standard sale contracts between [Carpenter] as purchaser and each of the farmers as vendors did not continue onto the back of the CSNM standard sale contracts.[116]

119 Mr Phillip McVilly represented CS and CSNM when dealing with Carpenter, and he signed the CSNM contracts on CSNM's behalf. He deposed that he has known Mr Bond for 10 years and has had dealings with him on behalf of CSNM in relation to Carpenter from December 2014 to February 2015.[117] He also deposed that when completing sale contracts involving CSNM and Mr Bond as agent for Carpenter, he followed the same contract process that Mr Corey Baulch set out in paragraphs [6]-[11] of his affidavit.[118] Mr Baulch, who represented CS in dealings with Carpenter, deposed as follows:

I would draw up [CS'] standard form contract with all the trading the [sic] details...

[CS'] contract would then be signed by me as agent, the farmer himself as vendor and Bond as agent for the purchaser, Carpenter.[119]

120 Mr Baulch exhibited a copy of CS' standard form contract, which copy included a retention of title clause on the second page.

121 Despite his evidence, Mr McVilly did not, in fact, draw up the company's standard form contract as exhibited to Mr Baulch's affidavit. Instead, Mr McVilly drew up a contract missing several of the terms included in the company's 'standard form contract'. Mr McVilly did not give any evidence as to this omission and whether it was deliberate or accidental. Nor did he give any evidence as to any discussion between him and Mr Bond as to the ALPA terms or the terms of the transaction more generally.

Whether or not one party's standard terms are incorporated depends on whether that which each party says and does is such as to lead a reasonable person in their position to believe that those terms were to govern their legal relations. The Court has to determine what each party was reasonably entitled to conclude from the acts and words of the other.[120]

123 CSNM relied on Mr Bond's knowledge that the ALPA terms contained a retention of title clause to contend that the retention of title clause was incorporated into the contract, either by reference, by reasonable notice, or by a course of dealing.[121]

124 I am not persuaded by CSNM's argument. The full ALPA terms were not referred to in the CSNM contract, nor were they referred to by Mr McVilly or Mr Bond when signing the contracts. There is no evidence of any representation by CSNM that the full ALPA terms applied, or by Carpenter that it would be bound by the full ALPA terms. The retention of title clause was therefore not incorporated by reference. As for reasonable notice, I agree with Carpenter's submission that it has not been suggested that Carpenter was ever given notice of the omitted terms.[122] The front side of the CSNM contracts did not say that Carpenter agreed to any terms put forward by CSNM, and there is nothing else to suggest that Carpenter was ever informed that CSNM intended to contract on full ALPA terms. As for a course of dealing, CSNM could not point to any contracts between it and Carpenter that contained all the ALPA terms, particularly the retention of title clause. CSNM did not seek to rely on the course of dealing between CS and Carpenter, which course of dealing involved the full ALPA terms. Had it done so it would have needed to persuade the Court that a course of dealing with one entity within a corporate group can amount to a course of dealing with a different corporate entity within that group.

125 In this case, the evidence is not such as to overcome the absence of the argued for retention of title clause. The result is that Carpenter did not grant any security interest to CSNM.

126 On the other hand, for the CS transactions, Mr Baulch did provide Carpenter with a full set of CS terms with the retention of title clause. Accordingly, CS will have a security interest if the CS contract prevails.

127 I now consider the 'battle of the forms' issue. I accept, on the evidence, that Carpenter contracts were only signed by the parties when Carpenter was represented by its agent. The purpose of the Carpenter contracts was to allow the agents to collect their commission. For the reasons set out above in [43]-[45] in relation to DLS, I accept CS and CSNM's submissions that the Carpenter contract was the basis for its agent's remuneration and that the Carpenter contracts did not replace the CS and CSNM contracts.[123] CS' and CSNM's contracts prevail and the retention of title clause in the CS contract gave rise to a security interest in CS' favour.

Did CS' security interest vest in Carpenter under s 267?

128 The administrators were appointed to Carpenter on 24 March 2015 at 4.45pm AWST (6.45pm AEST). CS and CSNM registered security interests on the PPSR on 24 March 2015 at 5pm and 5.18pm AEST, before the administrators were appointed. Given that I do not consider that CSNM had a security interest, it is not necessary to consider their position further.

129 The issue to be determined is whether CS registered its security interests in time to avoid the effect of s 267 of the PPSA. If it did not, its security interests vested in Carpenter. If it did, its security interests did not vest under s 267, however s 588FL may still apply. The answer to this question depends on whether s 267(1)(b)(ii) refers to the time at which the administrators were appointed, or the day on which they were appointed. If it refers to the latter, it will also be necessary to consider the meaning of the word 'at'.

130 Section 267 of the PPSA provides:

Scope

(1) This section applies if:

(a) any of the following events occurs:

...

(ii) an administrator of a company or a body corporate is appointed (whether under section 436A, 436B or 436C of the Corporations Act 2001, under that section as it is applied by force of a law of a State or Territory, or otherwise);

...

and

(b) a security interest granted by the body corporate, company or bankrupt is unperfected at whichever of the following times applies:

...

(ii) in the case of any other company or body corporate--when, on a day, the event occurs by virtue of which the day is the section 513C day for the company or body, within the meaning of the Corporations Act 2001 (including that Act as it is applied by force of a law of a State or Territory, or otherwise);

Security interest vested in grantor

(2) The security interest held by the secured party vests in the grantor immediately before the event mentioned in paragraph (1)(a) occurs.

131 Section 267(1) deals with when the section applies, and sub-s (2) says what the section does if it applies. Section 267(2) provides for retrospective vesting immediately before the event mentioned in s 267(1)(b)(ii). Subsection (2) is clear enough, but the difficulty lies in s 267(1), and whether the section applies at all in this case.[124] Carpenter submitted that the focus of s 267(1)(b)(ii) is on the day of the administrator's appointment, not the time at which it occurred on a given day.

132 The s 513C day in relation to the administration of Carpenter is the day on which the administration began, therefore s 267(1)(b) applies when the security interest is unperfected 'at' the day of the administrators' appointment.[125]

133 CS 'beat the appointment to the finishing line by a couple of hours'.[126] It registered before the appointment of the administrators. However, CS' security interest was unperfected as at 24 March 2015, because it was not perfected as 'at' the commencement of the administration by reference to the s 513C day.[127]

134 For the purpose of s 513C, the external administration commences on the relevant day, not at a precise time of day.[128] Carpenter submitted that the legislature's tendency is to treat an administration as having commenced on a day rather than at a particular time within a day.[129] Treating an administration as having begun at the precise time of appointment would be inconsistent with that tendency.

135 In order for security interests to have been registered 'at' 24 March 2015, they must have been registered prior to 24 March 2015.[130] 'At' cannot mean 'on' because if it did, security interests could be registered after the appointment of administrators and still be timely.[131]

136 Section 36 of the Acts Interpretation Act 1901 (Cth) does not help in this case because it talks about calculating a period of time in days, and whether a day is included or not.[132] This case concerns the meaning of 'at'; 'at' a particular day.

137 As CS' security interests were not registered prior to 24 March 2015, s 267 applied and each security interest vested in Carpenter. It was submitted that this issue is 'not without difficulty', but the alternative approach of looking at the time of appointment rather than the day of appointment, 'just doesn't work'.[133]

138 CS compared s 513C(b) of the Act with s 57A of the Bankruptcy Act 1966 (Cth).[134] The latter states that the bankrupt is 'deemed to become a bankrupt at the first instant of the day on which the petition is accepted by the Official Receiver', while the former simply says that the s 513C day in relation to the administration of a company is 'the day on which the administration began'. Section 57A uses the 'zero hour' rule but s 513C appears not to do so. Section 513C gives no guidance on the meaning of when the day begins or ends. CS argued that the zero hour rule does not apply to s 513C.[135]

139 Section 36 of the Acts Interpretation Act 1901 (Cth) sets out several rules on calculating a period of time referred to in an Act. CS submitted that the most appropriate rule to apply to s 513C is that in item 2 of the table in s 36, namely that periods of time expressed to begin at, on or with a specified day include that day.[136]

140 CS submitted that the administration begins when the administrators receive notice of their appointment.[137] According to CS, s 267 'is engaged if the perfection of the security interest has not occurred in the period prior to the time that "immediately before" (sic) the administrator is appointed'.[138]

141 In their submissions on s 267, CS focused on the meaning of the words 'immediately before' in s 267(2). It was submitted that 'immediately before' refers to a more confined period of time than that connoted by 'before'.[139] It was further submitted that they perfected their security interests by registering financing statements 'well before' the receipt by the administrators of the resolution appointing them as administrators of Carpenter.[140]

142 As Carpenter submitted, this point is not without difficulty. I also accept Carpenter's submission that 'at' in s 267(1)(b) cannot have the expansive meaning of 'on'. A secured party does not have the entire day on which administrators are appointed to register its security interest. If a secured party registers after, but on the same day as, the appointment of administrators, s 267 will bite.

143 The critical question for determination is whether the secured party must register the day before appointment, or simply before the appointment. In other words, is the time referred to in s 267(1)(b)(ii) the date of appointment, or is it the particular time of appointment?

144 It may be said that the language of s 267 points to the former. Carpenter submitted, the focus in s 267(1)(b)(ii) appears to be on the 'day' not the time.

145 Carpenter focused on the meaning of 'at'. The meaning of 'at' will be critical if it is found that the time referred to in s 267(b)(ii) is the day of appointment. However, if it is found that the time referred to in s 267(b)(ii) is the time of appointment, it will not be necessary to consider the meaning of 'at'.

146 CS focused on the words 'immediately before' in s 267(2). CS seemed to submit that registration must occur 'immediately before' the appointment of administrators in order for a security interest not to vest.[141] It was contended that immediately before means the moment before appointment.

147 In this case, the key expression to be construed is: was CS' security interest 'unperfected at' 'when, on a day, the event occurs by virtue of which the day is the section 513C day for the company'.[142]

148 The second reading speech for the PPSA is not definitive in relation to the proper construction of s 267(1)(b)(ii). The original explanatory memorandum for the PPSA stated that:

4. The Bill would provide that a security interest vests in the grantor if the security interest is unperfected at one of the following times occurs in relation to the grantor:

a company or body corporate is wound up;

an administrator is appointed under the Corporations Act (or that Act as applied by a State or Territory law);

a company or a body corporate executes a deed of company arrangement;

a sequestration order is made under the Bankruptcy Act;

the person becomes a bankrupt under the Bankruptcy Act (clause 267).

149 The replacement explanatory memorandum provides:

4. The Bill would provide that a security interest would vest in the grantor if the security interest were unperfected when:

a company or body corporate is wound up;

an administrator is appointed under the Corporations Act (or that Act as applied by a State or Territory law);

a company or a body corporate executes a deed of company arrangement;

a sequestration order is made under the Bankruptcy Act;

the person becomes a bankrupt under the Bankruptcy Act (clause 267).

150 Clause 4 of the replacement explanatory memorandum lends support to CS' contention. Clearly, the words of the replacement explanatory memorandum do not prevail over the words actually used in s 267, however, they do advance the submission that s 267(1)(b)(ii) refers to the time when the administrators are appointed, rather than the day.

151 Although s 267 has been considered in other cases, I was not referred to any authority which considered whether s 267(1)(b)(ii) refers to the time of appointment or the date of appointment of administrators. In Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd[143] Santamaria JA, with whom Maxwell P and Whelan JA agreed, said '[s]ection 267 of the PPSA operates with respect to security interests granted by a body corporate that are unperfected at the time of its insolvency'.[144]

152 In White v Spiers Earthworks Pty Ltd,[145] administrators were appointed on 24 July 2013 and PPSR registration occurred after the appointment.[146] On the operation of s 267 Le Miere J said:

PPSA s 267(1) provides that the section applies if two conditions are met. The first is that one of the specified events occurs. One specified event is that an administrator of a company is appointed. In this case that occurred when voluntary administrators were appointed to the company on 24 July 2013.

The second condition is that a security interest granted by the Company is unperfected at the relevant time...

In this case the relevant time for determining whether the security interest is perfected is 24 July 2013 when the administration commenced. PPSA s 267(2) provides that the security interest held by the secured party vests in the grantor immediately before the relevant time mentioned in s 267(1). In the circumstances of this case the effect of PPSA s 267(2) is that the defendants' interest in the Hire Assets vested in the Company immediately before the appointment of administrators on 24 July 2013 if the defendants' interest in the Hire Assets is a security interest granted by the Company and it was unperfected when the administrators were appointed...[147]

153 Later on, Le Miere J said that the 'second condition for PPSA s 267 to apply is that the security interest granted by the Company was unperfected when the administration commenced'.[148]

154 In Albarran, Brereton J compared s 267 to a similar section in the British Columbia Personal Property Security Act 1989. Brereton J said:

The first answer to this submission is provided by PPSA, s 267(2), which provides that any security interest granted by a corporation that is unperfected at the commencement of its administration or winding up vests in the corporation. This provision is analogous to, but goes further than, the Canadian statute, considered in Re Giffen, which relevantly provided (by s 20(b)(i)), that a security interest in collateral is not effective against a trustee in bankruptcy if the security interest is unperfected at the date of the bankruptcy. The Supreme Court of Canada explained that the rationale of the provision was to enable trustees to defeat unperfected security interests because of the representative capacity of the trustee and the effect of bankruptcy on the enforcement rights of unsecured creditors, so as to permit the unsecured creditors to maintain, through the trustee, the same status vis-à-vis secured creditors who have not perfected their security interests which they enjoyed prior to the bankruptcy. Iacobucci J, speaking for the Court, said:

In the present appeal, the trustee's possessory interest in the car, acquired through the bankrupt under the authority of the BIA, comes into competition with the unperfected security interest of the lessor. Section 20(b)(i) of the PPSA states explicitly that a security interest in collateral "is not effective against a trustee in bankruptcy if the security interest is unperfected at the date of the bankruptcy". On a plain reading of s 20(b)(i), the lessor's interest in the car is ineffective against the trustee.

Section 20(b)(i) does not grant title or any other proprietary interest to the trustee, but it prevents the lessor from exercising rights against the trustee. Admittedly, the effect of s 20(b)(i), on the present facts, is that the trustee ends up with full rights to the car when the bankrupt had only a right of use and possession.

...

I accept that there is a principle which provides that a trustee in bankruptcy cannot obtain a greater interest to the goods than the bankrupt (beyond the context of a trust where the goods are not property of the bankrupt). However, s 20(b)(i) itself modifies that principle. Cases decided prior to the Court of Appeal decision in the case on appeal have consistently accepted that s 20(b)(i), or its equivalent, can give the trustee a greater interest in the disputed property than that enjoyed by the bankrupt.

Section 267 of the Australian PPSA differs, in that, rather than merely rendering the unperfected security interest ineffective against the grantor's trustee in bankruptcy or liquidator, it vests the interest in the grantor.

The consequence, in the present case, is that upon the commencement of the administration and/or winding up of Maiden, QES's unperfected security interests in the Caterpillars vested in Maiden.[149]

155 Section 20(b)(i) of the British Columbia Personal Property Security Act 1989 operates 'if the security interest is unperfected at the date of the bankruptcy' or 'if the security interest is unperfected at the date that the winding-up order is made'.[150] In contrast, s 267 of the PPSA will operate in this case if the security interest was unperfected 'when, on a day, the event occurs by virtue of which the day is the section 513C day for the company'. The sections both operate when a security interest is unperfected at a certain time, but the times differ.

156 The corresponding provision in the Saskatchewan Personal Property Security Act 1993, on which Act the PPSA was modelled, is s 20(2). Section 20(2) provides:

(2) A security interest in collateral is not effective against:

(a) a trustee in bankruptcy if the security interest is unperfected at the date of bankruptcy; or

(b) a liquidator appointed pursuant to the Winding-up Act (Canada) if the security interest is unperfected on the day that the winding-up order is made.

157 Canadian decisions interpreting s 20(b)(i) of the British Columbia Act, s 20(2) of the Saskatchewan Act or similar provisions in other Canadian provinces are unfortunately not of great assistance in interpreting s 267(1)(b)(ii). What follows the words 'unperfected at' in the Canadian legislation differs significantly from that in the PPSA.

158 I turn now to the proper construction of s 267(1)(b)(ii).

159 Carpenter submitted, and I agree, that s 513C focuses on the day of appointment. Section 513C(b) provides that the 'section 513C day in relation to the administration of a company is...the day on which the administration began'. But this does not mean that the administration begins at the first moment on the day the administrators are appointed. Section 435C(1)(a) of the Act provides that the 'administration of a company begins when an administrator of the company is appointed under section 436A, 436B or 436C'.

160 Section 267(1)(b)(ii) does refer to 'day' three times. In my opinion, the focus of the section is on the 'event'. The event is described as the event that causes a day to become a s 513C day. The day that becomes the s 513C day is the day on which the event occurs. The s 513C day is the day on which the administration began. Pursuant to s 435C(1)(a), the administration begins when an administrator is appointed. The 'event' referred to in s 267(1)(b)(ii), which is the focus of the provision, is therefore the appointment of the administrators.

161 It is to be noted that s 435C(1)(a) of the Act and s 267(1)(a)(ii) and (1)(b)(ii) of the PPSA all focus on the event of the administrator being appointed.

162 Further, it seems one of the references to 'day' in s 267(1)(b)(ii) is there to clarify the reference to the 'event'. The words 'on a day' in s 267(1)(b)(ii) are used to avoid expressing the section in terms such as 'when the event occurs by virtue of which the day on which the event occurred is the s 513C day for the company'. The words 'on a day' are used to make it clear that 'the day' refers to the day on which the event occurs. The event is the event that turns 'the day' into a s 513C day. That event is the appointment of administrators.

163 What Parliament did do was enact a provision that refers to 'when ... the event occurs', and describe that event by reference to its effect under s 513C. Given the emphasis in s 267(1)(b)(ii) is on the event of the administrators being appointed, I consider that a security interest will vest under s 267(2) if it is unperfected, (in common parlance) at the time when the administrators are appointed.

164 I take further support for this construction from the vesting time in s 267(2). Under s 267(2), vesting occurs immediately before the event in s 267(1)(a) occurs. Here, the event in s 267(1)(a) is the appointment of an administrator. In my view, immediately before the appointment of the administrator means immediately before the particular time the administrator is appointed. Accordingly, vesting under s 267(2) takes place immediately before the time the administrator is appointed. Construing s 267(1)(b)(ii) as referring to security interests that are not perfected at the time administrators are appointed is consistent with the vesting time in s 267(2).

165 This construction is also consistent with provisions in the Act which refer to s 267 of the PPSA. Section 443E(1)(b)(i) of the Act refers to security interests vesting in the company when the administration of the company begins, because of s 267 of the PPSA. Further, the note in s 437A of the Act says:

A PPSA security interest in property of a company that is unperfected (within the meaning of the Personal Property Securities Act 2009) immediately before an administrator of the company is appointed vests in the company at the time of appointment, subject to certain exceptions (see section 267 of that Act).

166 CS registered its security interest before the administrators were appointed, however the submission that it registered 'well before' appointment was not compelling. However, as CS registered before the administrators were appointed, s 267 does not apply. To determine otherwise would not give effect to the plain and ordinary language of the statute. The next question is whether CS' security interest vested under s 588FL.

Did CS' security interest vest in Carpenter under s 588FL?

167 It is now necessary to determine whether CS' security interest vested in Carpenter under s 588FL. Resolution of this issue will turn on the date when the CS contracts came into force. Whereas DLS disputed that the DLS contracts were the security agreements for the purposes of s 588FL, CS accepted that the individual CS contracts were security agreements within the meaning of s 588FL(2)(b)(ii). Unlike DLS, CS did not argue that the act of paying the vendors was the relevant security agreement. Rather, the dispute between Carpenter on the one hand, and CS on the other, concerns the date on which the individual CS contracts came into force. The 20 business day period in s 588FL(2)(b)(ii) begins to run from that date.

168 Carpenter argued that if CS' security interest did not vest under s 267, it vested under s 588FL because registration occurred outside 20 business days from the date the individual CS contracts were executed. According to Carpenter, the contracts came into force when they were signed, thereby triggering the 20 day period referred to in s 588FL(2)(b)(ii).

169 Carpenter submitted that CS and CSNM inappropriately merged the two issues of the contractual questions and attachment.[151] The two questions are separate, and the question of attachment should not influence the disposition of the contractual questions.

170 As to the contractual questions, Carpenter submitted that there are two types of conditions that can arise, namely, conditions as to contract formation and, secondly, conditions as to contract performance. In the former case, there is no valid and binding contract until the condition is satisfied.[152] CS must show that its contracts are an example of the former case, but Carpenter submitted that the contracts are examples of the latter. In cases of conditionality as to performance, there is a binding contract from the outset, but performance is conditional on something else.[153]

171 It was submitted that the 'subject to finance' cases are not of assistance to CS. Those conditions are conditions as to performance, not contract formation.[154] It goes without saying that contracts made subject to finance are still validly made contracts.

172 Carpenter said that the annotations on the front of the CS contracts in relation to the China protocol did not add anything new. They simply reflected the understood position that the cattle were to be exported to China and that they needed to comply with certain requirements.[155] The contracts involved the sale of large numbers of cattle, and the only 'conditionality' was the ability to reject individual cattle due to certain issues. In other words, there was a contract that contemplated 'dropping certain cattle out of it'.[156] It was not contemplated that the entire agreement would be abandoned. Rather, there were contracts dealing with large numbers of animals, and there was an ability to reject individual cattle.

173 In this case, the parties acted in accordance with the contracts. Those cattle that passed the initial blood tests were delivered and tested.[157] The parties did not sit on their hands waiting to 'see if the contracts were going to come into formation'.[158] Instead, they took intervening steps. Further, Carpenter submitted that unless it is very clear that a condition operates as a precedent to formation, as is the case with 'subject to contract', courts are inclined to construe a 'subject to' condition as a precedent to performance, not a precedent to formation. Carpenter relied on Perri v Coolangatta Investments Pty Ltd[159] to argue that there is a bias against conditions precedent to formation.[160] In this case, there was a binding contract upon execution, which created rights capable of enforcement.

174 Accordingly, pursuant to s 588FL, the individual contracts 'came into force' when they were executed, not when there was subsequent rejection.[161]

175 Further, Carpenter submitted that s 588FL is concerned with a security agreement coming into force, not with attachment.[162] Attachment may be a prerequisite to a security interest being enforceable against a grantor and third parties, and therefore a prerequisite to perfection, however s 588FL, as I have observed, is concerned with the security agreement coming into force. For the purposes of s 588FL, the Court looks at the security agreement, not the security interest. Carpenter submitted that 'attachment is not part of this calculus'.[163] In any event, if attachment were necessary, it occurred pursuant to s 19(5) when the cattle were first delivered to Carpenter.[164]

176 Finally on this issue, Carpenter relied on s 161 to argue that as far as registration in relation to the PPSA is concerned, there is flexibility in the PPSA in terms of the order of security interests, security agreements, and attachments. Section 161 encourages early registration,[165] by providing that:

Personal property may be described in a registration with respect to a security interest before or after:

(a) a security agreement is made covering the property; or

(b) a security interest attaches to the property.

177 CS argued that at the time of their signing, the CS and CSNM contracts were conditional contracts. There was a concluded contract in existence, but it was subject to conditions precedent. The contracts provided on the front page that they were conditional on blood tests and the China protocols.[166] They did not become binding, it was said, until those conditions were satisfied or the cattle were rejected.[167] CS likened the contracts to real estate contracts that are subject to finance, which do not become binding until finance is arranged.[168] In this case, the contracts did not become binding until such time as the cattle were either accepted or notice of rejection was given.[169]

178 For the purposes of s 588FL and s 267 of the PPSA, the CS contracts were not enforceable contracts, and CS's security interest only became enforceable once Carpenter sent them final rejection lists on 10 March 2015. The obligation to perfect the security interests by registration on the PPSR was triggered at this time because the contracts became unconditional. Registration occurred on 24 March 2015, within the 20 day period prescribed by s 588FL(2)(b)(ii).[170]

179 This argument centred around enforceability and attachment. Section 19(1) provides that a 'security interest is enforceable against a grantor in respect of particular collateral only if the security interest has attached to the collateral'. One of the requirements in s 19(2) for a security interest to attach to collateral is that 'the grantor has rights in the collateral, or the power to transfer rights in the collateral to the secured party'. CS submitted that in order for attachment to occur the grantor of the security interest must have proprietary rights in the collateral.[171] Until attachment occurs, there is no debtor/creditor relationship, and if no debtor/creditor relationship exists, there is no contract to which the PPSA applies.[172] While the CS contracts remained conditional, Carpenter did not have any proprietary rights in the collateral.

180 Carpenter's rights in the collateral, it was said, came into existence on 10 March 2015. At that point, the security interest attached to the collateral and became enforceable against Carpenter.[173] Once it became enforceable, the obligation to perfect the security interest was triggered.[174] In support of this argument, CS relied on two Canadian cases: 994814 Ontario Inc v RSL Canada Inc[175] and Ellingsen v Hallmark Ford Sales Ltd.[176] It was said that those cases demonstrate that no debtor/creditor relationship occurs, and there is therefore no enforceable contract and no security interest, until such time as the conditions in the contract are either satisfied or not satisfied.[177]

181 Although CS focused on the date it was notified of the final rejection list, rather than the dates it paid the vendors, it is worth noting the dates of payment. CS submitted that the assignments from the vendors to it of the rights under the contracts occurred between 6 and 10 March 2015.[178] Mr Stewart, however, deposed that CS paid the vendors for all stock listed in the individual contracts between 20 February 2015 and 17 March 2015.[179]

182 CS conceded that if the credit application forms provided for security interests and those interests attached upon execution, then registration occurred outside the 20 day period specified in s 588FL(2)(b)(ii).[180] In that case, the security interests vested in Carpenter. They also submitted that if the security interests arose under the individual CS contracts, and attachment occurred upon execution, then registration occurred outside the 20 day period specified in s 588FL(2)(b)(ii), and the security interests vested in Carpenter.[181] In the event that registration occurred outside the time prescribed in s 588FL(2)(b)(ii), CS seeks an extension under s 588FM.

183 CS' submissions on attachment ought not distract the Court from the critical issue of the date on which the security agreements came into force.

184 The 20 day period in s 588FL(2)(b)(ii) begins to run when the security agreement that gives rise to the security interest comes into force, not when the security interest attaches and not when it becomes enforceable. CS did not make any compelling submissions which established a link between attachment and enforceability on the one hand, and the terms of s 588FL(2)(b)(ii) on the other.

185 I accept Carpenter's submission based on s 161 of the PPSA that, as far as registration on the PPSR is concerned, there is flexibility in the PPSA in terms of the order of security interests, security agreements, and attachments. It is also clear that a person who is not a secured party, for example, can register a financing statement and avoid the civil penalty in s 151(1) as long as the person believes on reasonable grounds that the person will become a secured party. This flexibility in registration is consistent with the 20 day period in s 588FL(2)(b)(ii) beginning to run, in some cases, before attachment has occurred and therefore before the security interest is enforceable against the grantor.

186 There is no support in the plain words and the ordinary meaning of s 588FL(2)(b)(ii), the context of the PPSA or the case law for the proposition that the 20 day period does not begin to run until the security interest attaches and becomes enforceable against the grantor. Section 588FL(2)(b)(ii) clearly provides that time begins to run from the date the security agreement comes into force.

187 The Canadian authorities relied on by CS do not assist in the task of determining when the security agreements came into force. Canada does not have an equivalent to s 588FL. In Canada, the validity of registration and security interests as against a trustee or liquidator does not turn upon the date on which the security agreement came into force.

188 If the conditions in the CS contracts concerning testing and rejection amount to conditions precedent to formation of the contract, the contracts came into force once those conditions were satisfied. In that case, CS's security interest will not vest under s 588FL. If, however, the conditions are conditions precedent to performance of the contract or performance of certain obligations in the contract, the contracts came into force on the dates of execution. In that case, CS's security interest will vest in Carpenter under s 588FL unless CS is granted an extension of time to register under s 588FM.

189 Unless it is very clear that a condition operates as precedent to formation of the contract, courts are inclined to construe 'subject to ...' conditions as being precedent to performance rather than formation.[182] The exception to that bias against construing conditions as being precedent to formation is the condition 'subject to contract', which condition is generally treated as being precedent to formation.[183] In Perri v Coolangatta Investments Pty Ltd Mason J said:

Generally speaking the court will tend to favour that construction which leads to the conclusion that a particular stipulation is a condition precedent to performance as against that which leads to the conclusion that the stipulation is a condition precedent to the formation or existence of a contract. In most cases it is artificial to say, in the face of the details settled upon by the parties, that there is no binding contract unless the event in question happens. Instead, it is appropriate in conformity with the mutual intention of the parties to say that there is a binding contract which makes the stipulated event a condition precedent to the duty of one party, or perhaps of both parties, to perform. Furthermore, it gives the courts greater scope in determining and adjusting the rights of the parties. For these reasons the condition will not be construed as a condition precedent to the formation of a contract unless the contract read as a whole plainly compels this conclusion.[184]

190 In Perri it was held that the conditions in the contract were conditions precedent to performance, not conditions precedent to formation. Gibbs CJ said:

It is clear that a binding contract came into existence immediately upon signature, and that the parties to it were from that moment subject to certain obligations. For example, the appellants became liable to pay a deposit. Further, there was implied a promise by the appellants that they would do all that was reasonable to find a buyer for the Lilli Pilli property and to complete a sale to him...The fact that a promise of this kind is implied is quite inconsistent with the notion that no binding contract has come into existence.[185]

191 Whether a condition is precedent to performance or formation will depend on the proper construction of the condition in the context of the whole of the contract and the surrounding circumstances.[186] On the construction of written contracts, the High Court said in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd that:

It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.[187]

192 Given this bias in favour of conditions as to performance, I accept Carpenter's submissions and find that the conditions as to the China Protocols and blood tests are conditions as to performance of the CS contracts, not conditions as to formation. This is fortified by the terms of the CS contracts. The following are examples of terms that contemplate the contracts coming into existence upon signing:

14. Passing of Risk:

14.1 All Livestock (except livestock sold on a live-weight basis) shall be at the risk and expense of the Purchaser from delivery.[188]

14.2 The Purchaser shall indemnify the Vendor against any loss or damage caused by the stock occurring after the stock shall have become the risk of the Purchaser.

14.3 Where livestock are weighed prior to the Sale they shall be at risk and expense of the Purchaser from delivery. Where livestock are weighed after the Sale they shall be at risk and expense of the Purchaser's from completion of weighing.

14.4 After risk has passed the Purchaser shall not have any claim against the Vendor or Agent whatsoever howsoever arising.

15.1 If delivery is made to or possession is obtained by the Purchaser or tis representative before the Price is paid in full, by cash or credited to the Vendors or Agents account then until the Price is paid in full to the Vendor or Agent, the Purchaser;

15.2 Does not acquire title to the Livestock;

15.3 Holds the Livestock as trustee for the Vendor but in all respects at the risk of the Purchaser;

15.4 Must act in a fiduciary capacity in its relationship with the Vendor;

...

15.9 The Vendor or the Agent may repossess and resell the Livestock and enter property owned or occupied by the Purchaser or its representative if necessary to do so, and;

...

16.1 If the Purchaser is unable to secure trucks or transport on the date arrangement for delivery or from any other cause beyond the control of the Purchasers shall be unable to take delivery on that day the livestock shall be at the Purchaser's risk from that day, but an extension of time shall be given by the Vendor (maximum period 3 weeks) in which to take delivery after which time the Purchaser will pay agistment charges to be mutually agreed between the Vendor and Purchaser and in a default of agreement at a rate fixed by the Agent.

16.2 Notwithstanding anything herein contained where by reason of law order or regulation made by any competent authority which comes into effect after the date of the sale the Purchaser is unable to transport any Livestock to the destination nominated by him at the date of the sale, the Purchaser shall be bound nevertheless to accept and pay for the Livestock and shall have no claim for compensation or damages of any kind whatsoever.

17.1 If the Purchaser shall commit any breach of his obligations under this contract the vendor at the Vendor's option may rescind this Contract, sue the Purchaser for breach of contract or resell the livestock upon such terms and conditions as the Vendor elects and any deficiency arising and all expenses of and incidental to any such resale including any attempted sale shall be recoverable by the Vendor from the Purchaser as liquidated damages.

17.2 The Purchaser may not make any claim against the Vendor for actions by the Vendor under this clause and indemnifies the Vendor against any loss, damage, costs, expenses, penalties, fines or claims suffered by the Vendor or any person or entity arising from the Vendor exercising its rights under this clause.

193 Delivery and testing/quarantine did in fact occur prior to Carpenter sending CS the final list of rejections, which is consistent with the CS contracts coming into force upon signing (and before delivery occurred). Therefore, the condition 'subject to China Protocols and blood tests' is a condition as to contract performance and the contract was formed when the parties signed the contract.

194 Accordingly, by the operation of s 588FL(2)(b)(ii), CS had 20 business days to register its interests from the time when the contract was executed.

195 CS' security interest was registered after the time that is the end of 20 business days after the security agreement that gave rise to the security interest came into force. Their security interests will vest in Carpenter under s 588FL unless CS is granted an extension of time to register under s 588FM.

196 It was submitted that in the event the Court found that the 20 business day period in s 588FL(2)(b)(ii) commenced on the date the CS contracts were executed, CS sought an extension of time to register under s 588FM.

(1) A company, or any person interested, may apply to the Court (within the meaning of section 58AA) for an order fixing a later time for the purposes of subparagraph 588FL(2)(b)(iv).

(2) On an application under this section, the Court may make the order sought if it is satisfied that:

(a) the failure to register the collateral earlier:

(i) was accidental or due to inadvertence or some other sufficient cause; or

(ii) is not of such a nature as to prejudice the position of creditors or shareholders; or

(b) on other grounds, it is just and equitable to grant relief.

(3) The Court may make the order sought on any terms and conditions that seem just and expedient to the Court.

198 In his affidavit sworn 19 June 2015, Mr Stewart deposed that on or about 19 March 2015 CS was advised that there was to be a meeting on 21 March 2015 to discuss Carpenter's payment arrangements. He was informed that at the meeting Carpenter said there would be a delay in Carpenter paying for cattle, and payment was likely to be made in two instalments. As a result of this advice, Mr Stewart consulted CS' lawyers who advised that CS (and CSNM) should register financing statements on the PPSR. Mr Stewart immediately instructed CS' lawyers to lodge financing statements on CS (and CSNM's) behalf in order to protect their position. Accordingly, financing statements were registered.

199 Mr Stewart deposed that the appointment of administrators 'came as a great surprise' to him, given the Carpenter meeting had been held so recently.[189] He said the appointment was made without his knowledge on the same day that CS registered its security interest on the PPSR.

200 Mr Stewart deposed that '[g]enerally speaking my companies were aware that the reservation of title interests were required to be registered but we were never sure of the timing of when it was necessary'.[190] Mr Stewart knew, according to the evidence, that registration was based on the existence of a security agreement signed by the purchaser.[191]

201 Mr Stewart was unsure whether the credit application form was a security agreement or whether the individual contracts were security agreements.[192] Further, it was his 'understanding that the registration of a financing statement was not required until the conditional contracts had been accepted or within 20 business days after that date'.[193] Mr Stewart had assumed that because the individual contracts of sale were subject to blood tests and acceptance by Carpenter under the terms of the China Protocol, they were not unconditional. He thought that until the conditions were satisfied, the contracts were not binding on the purchaser or the vendor. He said they were similar to 'subject to finance' real estate contracts, which it appears he had some familiarity with given his evidence that he is an experienced real estate agent.[194]

202 There was evidence on affidavit by Mr Stewart in respect of which various objections were taken and upheld. For that reason, certain of Mr Stewart's evidence has not been taken into account for the purposes of this judgment.

203 Mr Stewart deposed that CS' (and CSNM's) usual process was to prepare the final invoice for cattle sold to Carpenter once they had received notification that the blood tests, breeding, quarantine and similar requirements had been satisfied and they had been provided with a list of rejected cattle.[195] The final list of rejects was received by email at about 8.24pm on 4 March 2015.[196] CS had emailed invoices to Carpenter shortly before the final list of rejects was received. Once the final list was received, adjustment notes were prepared. They were emailed to Carpenter on 4 March 2015.[197]

204 Mr Stewart said that CS (and CSCM) was usually paid in full for all stock within seven days of the end of the month in which the purchase was made, so registration on the PPSR seemed unnecessary and never occurred.[198] Clause 1 of the credit application form provided that 'All accounts are to be settled, paid in full, within seven days from end of month purchased'.

205 CS submitted that if an extension of time is required under s 588FM, it should be granted an extension to 24 March 2015. CS relies on s 588FM(2)(a)(i) and (b).

206 CS conceded that an extension will not generally be granted if there is a danger that claims of unsecured creditors would not be met owing to the insolvency or likely insolvency of the company.[199] But this is not an absolute bar to the exercise of the discretion on the grounds of inadvertence. It was submitted that an extension of time may be granted under s 588FM despite administrators having been appointed.[200] Further, CS submitted that it is not the case that where a company is already being wound up, the Court's power under former s 266(4) and current s 588FM of the Act should only be exercised in 'exceptional circumstances'.[201]

207 In its application for an extension based on s 588FM(2)(b), CS submitted that it incorrectly believed that neither the credit application forms nor the individual CS contracts were enforceable security agreements once signed.[202] It immediately instructed lawyers to register its security interest upon becoming aware that registration was required once the contracts became unconditional.[203]

208 CS also submitted that no other parties sought to register interests in relation to Carpenter on the PPSR during the period of CS' delay in registering, so the only people who could be prejudiced are the unsecured creditors.[204] CS submitted that the prejudice to the unsecured creditors of not having their claims met is not an absolute bar to granting the extension of time on the grounds of inadvertence.[205]

209 To substantiate their application, CS further argued that an extension of time is justified for the following reasons:

...

(c) if possession under section 19(5) of the PPSA applies, which is not contended for the reasons given above, the period in which the security interests were not registered on the PPSR (or otherwise perfected) was only one business day, excluding the weekends;

...

(e) the only other parties to register a security interest in relation to Carpenter prior to the appointment of administrators were those interests of already perfected by registration on the PPSR. Consequently, at the time of registration, the prior registered security interests were pmsi's that had priority in respect of the unpaid purchase price of the cattle described in their contracts because of sections 14 and 62 of the PPSA.

210 I have noted these submissions but, in the circumstances of this case, I do not find them compelling or of any material assistance.

211 Carpenter opposed CS' application for an extension of time to register. Carpenter submitted that the principles that governed former s 266(4) of the Act apply to s 588FM.[206] It contended that 'inadvertence' occurs where there is a failure to advert to or understand the requirement for registration within the specified time period, and innocent error in the sense of failure to register through ignorance of the legal requirement to do so, or of the consequences of not doing so.[207]

212 Where a party is aware of the requirement to register, but not the precise statutory time limit, the failure to register may be 'inadvertent' depending on the length of the delay and whether the party was continually conscious of the requirement.[208] Carpenter submitted that Mr Stewart's evidence suggests that he was continually conscious of the need to register within 20 business days.[209] The reason he did not register earlier was that he thought registration of financing statements was not required until the conditional contracts with Carpenter had been accepted, or within 20 business days of that date.[210]

213 Carpenter submitted that Mr Stewart was prompted to register on the PPSR by certain disclosures Carpenter made in the 21 March 2015 meeting.[211] At the meeting it was disclosed that Carpenter was then or was imminently insolvent within the meaning of s 95 of the Act. However, Carpenter does not maintain that the entirety of that information was passed on to Mr Stewart. Mr Stewart was not at the meeting, but he was aware that it was convened to discuss payment arrangements, that creditor indulgences were required, that Carpenter admitted there would be a delay in payment and that payment was likely to be made in instalments.[212] After this 'alarming' information filtered through to Mr Stewart, he consulted a lawyer and then registered on the PPSR. It can be inferred on the evidence that the trigger for the registrations was therefore the 'alarming' information that filtered through to Mr Stewart.[213]

214 It was further submitted that even if CS had been 'inadvertent' within the meaning of s 588FM(2)(a)(i), the Court has to consider whether to exercise its discretion to grant an extension.

215 When considering the exercise of the discretion, the Court should take into account the fact that registration of the security interests took place necessarily upon and with knowledge that Carpenter was insolvent.[214] CS registered only hours prior to the appointment of administrators, which militates against an extension.

216 A further factor to be considered is the substantial delay between the expiration of the 20 business days after the signing of the relevant contracts and the date of registration.[215] The delay ranges from 7 days to 130 days, with a median delay of 32 days. There was also delay in bringing the application for extension. The application was brought some months after the appointment of the administrators.[216] Another discretionary factor to be considered is the financial position of the company at the time of the application for an extension, and after the appointment of administrators, an extension should only be granted in exceptional circumstances.[217] Carpenter conceded that the mere fact that an extension would reduce the dividend of other unsecured creditors is not itself sufficient to prevent an extension being granted. Nevertheless, the Court should not grant an extension to CS 'at the eleventh hour in circumstances where what they should be doing is registering their interests as soon as they reasonably can, not waiting to find out until the balloon's gone up before they take any action'.[218]

217 It appears that s 588FM has been applied liberally. One of the cases under s 588FM involved an application for extension filed after a liquidator had been appointed to the company.[219] In another case, an administrator had already been appointed.[220] In Re Quality Blend Liquor Pty Ltd[221] a provisional liquidator had been appointed by the time Wilson J granted an extension. In yet another case, an extension was granted even though the plaintiff intended to appoint a voluntary administrator and receivers to the grantor company.[222] In Appleyard an extension was granted despite the high degree of likelihood that the grantor was insolvent and would go into liquidation or administration within six months.[223] As CS submitted, the fact that administrators have been appointed to Carpenter is not a bar to relief under s 588FM.

218 The operation of s 588FM and the meaning of 'inadvertence' were explained by Brereton J in Appleyard:

...s 588FM confers on the Court a discretion to fix a later time if satisfied of any one of three grounds, namely that the failure to register the collateral earlier was accidental, or was not of such a nature to prejudice the position of creditors or shareholders, or that on other grounds it is just and equitable to do so. The section also permits the Court to make the order on terms and conditions.

For the purpose of s 588FM(2)(a)(i), "inadvertence" includes failure to advert to or understand the requirement for registration within the specified period, and innocent error in the sense of failure to register through ignorance of the legal requirement to do so, or of the consequences of not doing so.[224]

219 Black J in Re Cardinia Nominees Pty Ltd pointed out that interpreting 'inadvertence' as covering those circumstances was consistent with the emphasis placed in the case law upon the benevolent operation of predecessor sections, at least where the secured creditor's failure to register in time is innocent and does not result from any disregard of its statutory obligations.[225]

220 In this case, CS submitted that its failure to register in time was accidental or due to inadvertence or some other sufficient cause. It was submitted that it mistakenly believed the 20 day period in s 588FL(2)(b)(ii) did not begin to run until the contracts became unconditional. If this is accepted as the reason for its failure to register in time, it amounts to inadvertence within the meaning of s 588FM(2)(a)(i) because it demonstrates a failure to understand the requirement for registration and/or the effect of the CS contracts.

221 As I have observed, Mr Stewart gave evidence that he did not think registration was 'required' until the contracts became unconditional and, as a result, CS did not register its security interest when it believed the contracts became unconditional. In the submissions, CS argued that the contracts became unconditional on 10 March 2015, but Mr Stewart's evidence is that he received the final list of rejects on 4 March 2015. Nothing turns on whether the date is 4 March 2015 or 10 March 2015. It is significant that Mr Stewart did not give any evidence that CS had calculated the date 20 business days from either 4 or 10 March 2015 and was planning on registering within 20 business days of the contracts becoming unconditional. There was no evidence of a decision or plan to register within 20 days of 4 or 10 March 2015 if Carpenter had not paid by that time.

222 I do not find CS's submission that it immediately instructed lawyers to register its security interest upon becoming aware that registration was required once the contracts became unconditional to be compelling. It must be remembered that CS argued that the reason it did not register upon execution of the individual contracts, or within 20 days of the execution, was that it believed it was not required to register until the contracts became unconditional. That belief existed long before CS registered on the PPSR. The belief may be the reason for the failure to register initially, but it is not the reason for the registrations.

223 Mr Stewart's evidence is that he was surprised to learn that the appointment occurred on the same day as registration. I accept that the timing of the appointment may have been a surprise, but I do not accept that the fact of appointment was a surprise. Mr Stewart's evidence reveals that the registrations on the PPSR were prompted not by legal advice that security agreements must be registered within 20 days of becoming unconditional, but by notice that Carpenter was having difficulty making payments, that there would be a delay in Carpenter paying for cattle, and that payment was likely to be made in two instalments. There is no suggestion in Mr Stewart's evidence that without that knowledge, he would have registered financing statements at all. I accept Carpenter's submissions that CS' registrations were prompted by the information from the meeting on 21 March 2015 that filtered through to Mr Stewart.

224 The following passage of Mr Stewart's evidence is significant:

Generally speaking my companies were aware that the reservation of title interests were required to be registered but we were never sure of the timing of when it was necessary. I was also aware that documents were no longer to be registered and a simple notice would be lodged with the PPSR. This notice was to be based on a security agreement that was required to be signed by the purchaser.

...

...I did not know when the 20-business day period in the Corporations Act 2001 applied. It was my understanding that the registration of a financing statement was not required until the conditional contracts had been accepted or within 20 business days after that date.

...I assumed that because all of the individual contracts of sale were subject to blood tests and acceptance by Carpenter under the terms of the China Protocol that this meant that the contracts were not unconditional. In other words, until the conditions were satisfied the contracts were not binding on the purchaser and the vendor.

...

Despite the PPSA difficulties, as CS and CSNM were usually paid in full for all stock within the terms of the clause 1 (ie within 7 days of the end of the preceding month), registration of a financing statement seemed unnecessary and never occurred.[226]

225 The 'clause 1' referred to is found in CS' trading terms and conditions, as set out in the CS credit application. Clause 1 provided:

Payment - All accounts are to be settled, paid in full, within 7 days from end of month purchased. Where discounts for early payment have been offered, they are only valid if payment is made within the trading terms as specified. An account keeping fee of $10 may be charged on overdue accounts or copy statements/invoices.

226 Mr Stewart knew of the requirement to register security interests. He was mistaken as to when the 20 day period in s 588FL(2)(b)(ii) commenced, but he knew that there was a requirement to register in order to avoid vesting, and he knew the period in which he had to register. Had he deposed that even before learning of Carpenter's financial difficulties, CS had already planned to register within 20 days of 4 or 10 March 2015 if Carpenter had not paid, I would have been satisfied that the failure to register in time was due to inadvertence within the meaning of s 588FM(2)(a)(i). On the contrary, Mr Stewart's evidence was that usually all stock was paid for within seven days of the end of the month in which the cattle was purchased, so registration on the PPSR seemed unnecessary and never occurred. It presents as a real possibility that in accordance with this usual practice, CS would never have registered security interests against Carpenter if it did not have reason to think that Carpenter would not pay. I also note that if a purchase were made at the very start of the month, the 20 day period in s 588FL(2)(b)(ii) would expire before the time for payment under clause 1 of the credit application form expired.

227 I find that the reason CS failed to register in time was a belief that Carpenter could and would pay CS. CS knew of the requirement to register. It decided to register because it learnt that Carpenter might not be able to pay, not because 20 business days from 4 or 10 March 2015 was fast approaching. Put another way, I am not satisfied that had CS' mistaken belief been corrected on the day the individual contracts were executed, it would have registered in time. The reason CS failed to register in time, namely a belief that Carpenter could and would pay in time, does not amount to inadvertence within the meaning of s 588FM(2)(a)(i).

228 Given my finding as to the reason CS did not register its security interests in time, I also find that the failure to register in time does not amount to an accident or 'some other sufficient cause' within the meaning of s 588FM(2)(a)(i), and that CS has failed to establish that on other grounds, it is just and equitable to grant relief, within the meaning of s 588FM(2)(b).

229 This means the Court's discretion under s 588FM is not enlivened. I will now consider whether the Court would have exercised its discretion to grant an extension, had the discretion been enlivened.

230 The length of delay between the expiry of the 20 day period and the actual date of registration is a relevant factor in the exercise of the Court's discretion under s 588FM. Carpenter submitted that the delay, which ranges from 7 days to 130 days is substantial. There have been decisions where a two month delay, almost double the average delay in this case, has been held to be not particularly long.[227] A delay of approximately 11 months has been held to be a relatively long time, but not a bar to extension.[228]

231 Even if the delay in this case were substantial, the delay in registration will not itself preclude an extension, because the significance of the passage of time is mainly related to the possibility of competing interests having arisen.[229] There is no evidence in this case of any such competing interests having arisen during the delay.

232 Carpenter submitted that another discretionary factor to be considered is Carpenter's financial position at the time of the application for extension. It submitted that after administrators have been appointed to the grantor company, an extension should only be granted in exceptional circumstances. For this proposition Carpenter cited Appleyard, however the passage Carpenter relied on referred to extensions being granted only in exceptional circumstances after the commencement of a winding up. In that case, Brereton J also said that 'courts have not infrequently been prepared to grant extensions of time, even in a context where liquidation or administration is in contemplation, though reserving leave to any liquidator or administrator to apply to set the order aside'.[230] Further, his Honour said that where such a course is taken, it does not follow that in the event of liquidation or administration the extension would be set aside; the extension would only be set aside if the liquidator or administrator persuaded the court to yield to the unsecured creditors' interests.[231]

233 The approach to be taken when the grantor is insolvent or likely to become insolvent was described by Black J in Re Cardinia Nominees Pty Ltd as follows:

The Courts have emphasised, in respect of predecessor sections, that unless an applicant leads evidence of the company's solvency and the likelihood of its solvency being maintained into the foreseeable future, an extension should not be granted unless steps are taken to protect the interest of unsecured creditors. Steps that might be taken to achieve that result include joining one or more unsecured creditors as representative parties; directing that notification of the application be given to unsecured creditors with a view to their being heard in opposition to it, if they wished to do so; or granting an extension of time reserving a right to the company or any unsecured creditor or any person representing the interests of unsecured creditors to apply at a later time to discharge or vary the order.

An order for extension would not generally be made, even where it would merely put the secured creditor in the position it would have been had there been no inadvertence, if there was a danger that claims of unsecured creditors would not be met owing to the insolvency or likely insolvency of the company. In Bevillesta, the Court granted such an extension on terms that it reserved liberty to the company, any liquidator, administrator, deed administrator or creditor of a company to apply the discharge or vary the order if any winding up of the company commenced, or an administrator of the company was appointed under ss 436A, 436B or 436C, or the company executed a deed of company arrangement within 6 months of the date on which the notice of charge was lodged. In my view, the rationale supporting that approach remains applicable in respect of applications under s 588FM of the Corporations Act.[232]

234 As to steps being taken to protect the interests of unsecured creditors, in this case, the application for an extension was not ex parte. The administrators appeared and opposed the grant of an extension, and in doing so they represented the interests of unsecured creditors. This is one way in which the interests of unsecured creditors have been protected, as contemplated by Black J in Re Cardinia Nominees Pty Ltd.

235 As to a general position that extensions should not be granted if there is a danger that claims of unsecured creditors would not be met owing to the insolvency or likely insolvency of the company, with respect, I prefer the approach of Brereton J in Appleyard,[233] which his Honour later summarised in Re Transurban CCT Pty Limited as follows:

In Appleyard Capital, I also discussed the significance of risk or prejudice to unsecured creditors and concluded that although the presence or absence of such prejudice was a relevant discretionary consideration, relevant prejudice was not necessarily established merely by showing that the dividend to unsecured creditors would be reduced if the security interests were not to vest in the company, as those creditors may well have been in no better position had the security interest been registered in a timely manner. The type of prejudice that is of particular relevance is prejudice attributable to delay in registration, rather than prejudice from making the order (which is inevitable). The period of delay in effecting registration is relevant, primarily because the shorter the delay the less likely that failure to register within time will have had any impact. The significance of the passage of time is mainly related to the possibility of competing interests having arisen, in particular through others having dealt with the company on the footing that the collateral was unencumbered. The mere fact that if the extension is granted unsecured creditors will be deprived of the benefit of the security interest vesting in the company and thus receive less dividend is no objection to making an order.[234]

236 As Brereton J explained in Appleyard, the only utility of an extension order is in the event that the company does go into liquidation or administration within six months after the actual date of registration.[235] Section 588FM therefore contemplates that within six months of the actual date of registration, the company will go into administration or liquidation, and the unsecured creditors will receive less dividend if an extension is granted. The fact that administrators have been appointed to Carpenter does not mean an extension should not be granted. If some prejudice to unsecured creditors other than a reduced dividend can be shown, the Court may decline to exercise its discretion under s 588FM. The prejudice that must be shown is prejudice from the failure to register in time, not prejudice from the granting of an extension.[236]

237 Here, Carpenter did not submit that the unsecured creditors were prejudiced in the necessary sense. That is, it did not argue that unsecured creditors would be prejudiced because they dealt with Carpenter on the basis that the collateral was unencumbered. Nor did Carpenter submit that the length of the delay between the expiry of the 20 day period and the date of registration increased the likelihood that unsecured creditors would be prejudiced in the necessary sense. Quite rightly, Carpenter conceded that the mere fact that an extension would reduce the dividend of other unsecured creditors is not itself sufficient to prevent an extension being granted. Reduction in dividend appears to be the only relevant prejudice that unsecured creditors would suffer in this case, which prejudice would also have been suffered if CS and CSNM had registered in time. I therefore find that the Court is not precluded from granting an extension by any prejudice to unsecured creditors or the fact that administrators have been appointed to Carpenter.

238 Another discretionary factor Carpenter relied on was that CS's extension application was brought some months after the appointment of the administrators. I do not place much weight on this argument. CS believed that it registered in time to avoid vesting under s 588FL or s 267. In its view, there was no need to apply for an extension under s 588FM. Until it was clear that the administrators were going to argue that CS's security interest vested in Carpenter, it would not have been necessary for CS to seek an extension. The key discretionary factors in this case are the delay and the fact that administrators have been appointed to Carpenter. Those factors have been considered already. The delay between the appointment of administrators and the bringing of the extension application does not add to the analysis, in my opinion.

239 Carpenter also argued that when considering the exercise of discretion the Court should take into account the fact that registration of the security interests took place upon learning that Carpenter was in financial difficulty, and that registration occurred only hours prior to the appointment of administrators. Those facts contributed to the conclusion that the Court's discretion under s 588FM was not enlivened in this case. If that conclusion is wrong, and the discretion is enlivened, I do not think the timing of registration or the fact it occurred after learning of Carpenter's potential insolvency preclude the Court from exercising its discretion. The timing of the registration is relevant to the issue of prejudice to unsecured creditors, which has been considered above. In my view, CS's reason for registration is most relevant to the matters in s 588FM(2)(a) and (b). If s 588FM(2)(a) and/or (b) are satisfied despite that reason, I would not decline to exercise the Court's discretion on account of that reason.

240 In respect of the Schedule B cattle the plaintiffs sought a direction under s 447D of the Act that they are justified in proceeding in respect of the Schedule B cattle on the basis that:

(a) Carpenter is the absolute legal and beneficial owner of the cattle because the Carpenter terms applied to the Schedule B cattle transactions; or

(b) Carpenter is entitled to deal with the cattle because any security interest granted by Carpenter in respect of the cattle vested in Carpenter immediately before the appointment of the plaintiffs on 24 March 2015 pursuant to s 588FL of the Act.

241 The plaintiffs also sought a direction pursuant to s 447D of the Act that they are justified in treating any net proceeds from any sale of the Schedule B cattle as Carpenter's property, subject to any claim to any further security interest with the requisite priority in respect of the cattle made by GG Feedlot being accepted or established.

242 As the Court has found that DLS, CS and CSNM's terms applied to the Schedule B cattle transactions, and that DLS and CS' security interests vested in Carpenter under s 588FL of the Act, the Court will give the following directions:

(a) the plaintiffs are justified in proceeding in respect of the Schedule B cattle on the basis that Carpenter is entitled to deal with the cattle because any security interest granted by Carpenter in respect of the cattle vested in Carpenter immediately before the appointment of the plaintiffs on 24 March 2015 pursuant to s 588FL of the Act; and

(b) the plaintiffs are justified in treating any net proceeds from any sale of the Schedule B cattle as Carpenter's property, subject to any claim to any further security interest with the requisite priority in respect of the cattle made by GG Feedlot being accepted or established.

243 Schedule D cattle are cattle that were the subject of an email from Carpenter to the relevant del credere agent which rejected the cattle due to some defect. Had they not been rejected, the Schedule D cattle would have fallen into one of the other schedules.[237] The plaintiffs seek a direction pursuant to s 447D of the Act that they are justified:

(a) in proceeding on the basis that Carpenter is the absolute legal and beneficial owner of the Schedule D cattle on the basis that title to the cattle passed to Carpenter; and

(b) upon selling the Schedule D cattle, in treating any net proceeds from any sale of the cattle as Carpenter's property, subject to any further security claim made by GG Feedlot (including any issue as to priority) being accepted or established.

244 The agents relevant to the Schedule D cattle are:

245 CS submitted that Carpenter acquired rights in the cattle not rejected by it, once Carpenter supplied CS with its final rejection list.[238] The effect of this submission seems to be that Carpenter did not acquire title in the cattle it rejected, and that CS disputes Carpenter's claim over the Schedule D cattle.

246 Carpenter submitted that of the 58 cattle in Schedule D, 50 were subject to a VDI.

247 The VDI exhibited to Mr Berkefeld's affidavit is headed 'Vendor Declaration & Instructions: China, Breeder Cattle v1.2' and provides as follows:

• Cattle are purchased on the basis that they are delivered in a fit and healthy state to the designated quarantine. Cattle with ringworm, warts, injury or any other sign of ill health must not be delivered to quarantine. Any animal delivered to quarantine showing any of the above health issues will be rejected from the shipment.
• A National Vendor Declaration (NVD) must be supplied and delivered with the cattle to quarantine.
• Heifers are purchased on the basis that they both unjoined/open and able to breed, all heifers will be checked for breeding soundness by an ACV accredited veterinarian employed by Carpenter International Pty Ltd on entry to quarantine, any heifer found to be pregnant a freemartin or have any other breeding tract abnormality will be rejected from the shipment.
• Cattle must be transported to the quarantine in accordance with the Australian Standards for the Export of Livestock. Any cattle delivered to quarantine with trucking injuries will be rejected from the shipment.
• Any Heifer that is found not to be true-to-type as per ACGEA guidelines (or relevant Breed Society) will be rejected from the shipment.
• Cattle will only be deemed as acceptable for entry to quarantine once the following requirements are met:
  • Property Clearance from relevant DPI as per China Protocol.
  • Pass relevant breed society true-to-type inspection.
  • Category 1 - Freeze Brands/Tattoos checked and confirmed be relevant breed society/ILRIC.
  • Category 1 - Confirmed certificate with the relevant breed society/ILRIC.
  • Category 2 - Confirmed Single/Multiple Sire certificate by the relevant breed society/ILRIC.

Heifers rejected from the shipment for non-compliance with the above requirements will not be returned to the vendor, vendors with rejected heifers will receive a price of $200.00 per head/rejected heifer.[239]

I confirm that I have read and understand the above mentioned conditions for export to China and agree to adhere to all conditions set above. I also agree not to dispose of any selected cattle, except through death caused by natural causes, in the interim.

248 Carpenter submitted that there was a second version of the VDI that provided that vendors with rejected heifers would receive $250 per head of rejected dairy cattle and $400 per head of rejected beef cattle.[240]

249 It was not argued by the defendants that the VDIs did not form part of the terms governing the transactions. DLS simply submitted that in each of its transactions with Carpenter a 'diseases form was completed by the 'vendor farmer'.[241] CS and CSNM submitted that further conditions of the transactions were that the cattle were free from disease and other ailments.[242]

250 I accept that the signed VDIs formed part of the terms governing the cattle purchases. The cattle were purchased by Carpenter for export to China, so the conditions and suitability for export to China were critical terms of the transactions. Those terms were contained in the VDIs. The importance of the VDIs is captured in Mr Bond's evidence that:

Each vendor's property had to comply with the China protocol. I was required to have a Carpenter form called 'Vendor Declaration & Instructions China, Breeder Cattle v1.2' form signed by each vendor. This was one of several forms necessary for the China protocol.

It was necessary for a vendor to sign a form declaring that the cattle were fit and healthy; able to breed and that they satisfied the ACGEA guidelines (Australian Cattle Genetics Export Agency) for the relevant breed. The sale and acceptance of the heifers was always subject to these strict requirements and also satisfactory blood tests, pregnancy tests and property clearance tests on the vendor's farm. If any of the heifers did not satisfy the requirements they would be rejected as unsuitable for export to China.[243]

251 Mr Stewart, Managing Director of CS, also referred to the VDIs as containing conditions of the sale contracts.[244]

252 The signed VDIs sat alongside the Carpenter contract or the vendor agent's contract. Where the Carpenter contract and a VDI applied to the transaction, title to the cattle passed to Carpenter upon Inspection, as explained below in relation to the Schedule E cattle. The subsequent rejection of the cattle did not alter the passing of title to Carpenter at the time of Inspection.

253 Where the DLS or CS contract and a VDI applied to the transaction, one of two situations applied:

(a) DLS and CS had a retention of title security interest in the cattle, despite the terms of the VDI. However, as discussed in relation to the Schedule B cattle above, DLS and CS' security interests in the cattle vested in the plaintiffs under s 588FL of the Act; or

(b) the VDI term 'Heifers rejected from the shipment for non-compliance with the above requirements will not be returned to the vendor' displaced the retention of title clause in the DLS and CS contracts, and DLS and CS were never granted a security interest in the cattle.

254 In either situation, DLS and CS did not have a perfected security interest enforceable against the plaintiffs.

255 Where the CSNM contract and a VDI applied to the transaction, CSNM did not have a perfected security interest in the cattle as the CSNM contract did not contain a retention of title clause.

256 In relation to the other vendors, the conclusion is the same as that for the Schedule A cattle. The other vendors did not have a perfected security interest enforceable against the plaintiffs, and the rejection of their cattle did not alter that fact.

257 There were eight head of cattle in respect of which no VDI was signed. Carpenter submitted and I find that:

(a) one head of cattle was subject only to CSNM terms.[245] As I have found that the CSNM terms did not contain a retention of title clause, CSNM does not have a perfected security interest enforceable against Carpenter in respect of this head of cattle;

(b) six head of cattle are the subject of a battle between Carpenter's and CS' terms.[246] Had this cattle not been rejected, it would have been included in the Schedule B cattle. I have already found that CS' terms applied, and that CS had a security interest that vested in the plaintiffs under s 588FL of the Act, as discussed above; and

(c) one head of cattle is the subject of a battle between Carpenter's and Frontier's terms.[247] Had this head of cattle not been rejected, it would have been included in the Schedule A cattle, as Frontier did not register a security interest on the PPSR. If Carpenter's terms applied, title to the cattle would have passed to Carpenter upon Inspection. If Frontier's terms applied, Frontier had a security interest that vested in the plaintiffs under s 267 of the PPSA.

258 Accordingly, for each head of Schedule D cattle, either title passed to Carpenter upon Inspection under the Carpenter contracts, or any security interest in the cattle vested in the plaintiffs under s 267 of the PPSA or s 588FL of the Act. It is unnecessary to determine which of those applies to each head of cattle.

259 As I have found it unnecessary to determine the effect of the terms of the VDI on the vendor agents' terms, the Court will give a direction pursuant to s 447D of the Act that differs slightly from that sought by the plaintiffs. The Court directs that the plaintiffs are justified:

(a) in proceeding on the basis that Carpenter is the absolute legal and beneficial owner of those of the Schedule D cattle that would, but for their rejection, have been Schedule E cattle, on the basis that title to the relevant cattle passed to Carpenter;

(b) in proceeding on the basis that Carpenter is entitled to deal with those of the Schedule D cattle that would, but for their rejection, have been Schedule A cattle or Schedule B cattle; and

(c) upon selling the Schedule D cattle, in treating any net proceeds from any sale of the cattle as Carpenter's property, subject to any further security claim made by GG Feedlot (including any issue as to priority) being accepted or established.

260 The Schedule A cattle were not the subject of dispute by the parties that appeared in these proceedings; no contradictor appeared at trial or filed submissions in respect of those cattle. DLS, CS and CSNM were not involved in any of the Schedule A cattle transactions.

261 The plaintiffs seek a direction pursuant to s 447D of the Act that they are justified in proceeding in respect of the Schedule A cattle on the basis that:

(a) Carpenter is the absolute legal and beneficial owner of the cattle because the Carpenter terms applied to the Schedule A cattle transactions; or

(b) Carpenter is entitled to deal with the cattle because any security interest granted by Carpenter in respect of the cattle vested in Carpenter immediately before the appointment of the plaintiffs on 24 March 2015 pursuant to s 267 of the PPSA.

262 The plaintiffs also seek a direction pursuant to s 447D of the Act that they are justified in treating any net proceeds from any sale of the Schedule A cattle as Carpenter's property, subject to any claim to any further security interest with the requisite priority in respect of the cattle made by GG Feedlot being accepted or established.

263 Schedule A cattle is cattle to which a retention of title clause applied if the vendor agents' terms governed the relevant transactions. If Carpenter's terms applied, there was no retention of title clause. The plaintiffs conceded that the agents' terms applied to some transactions, but submitted that there was a battle of the forms in relation to other transactions.[248]

264 Critically, none of the Schedule A cattle was the subject of registration on the PPSR.[249] Any security interests in respect of the Schedule A cattle would have vested in the plaintiffs under s 267 of the PPSA. It is therefore unnecessary to determine whether Carpenter's terms or the vendor agents' terms applied to the relevant transactions. Even if the vendor agents' terms applied to all the Schedule A cattle transactions, and there was a retention of title clause, the security interest in the cattle vested in the plaintiffs under s 267 of the PPSA.

265 I note that the plaintiffs' Further Amended Originating Process and written submissions are inconsistent in their identification of the agents and vendor in respect of the Schedule A cattle. The Further Amended Originating Process lists the following vendor and agents as parties to the Schedule A cattle transactions:

266 The plaintiffs' submissions omit Charles L King, but otherwise list the same vendor and agents. Based on the evidence and submissions, it is not clear why Charles L King was omitted in the submissions in respect of Schedule A cattle. Nothing turns on this, as any security interests in the Schedule A cattle vested in the plaintiffs pursuant to s 267 of the PPSA.

267 As I have found it unnecessary to decide whether the Carpenter terms or the vendor agents' terms applied to the Schedule A cattle, the Court will give a direction pursuant to s 447D of the Act that differs slightly from that sought by the plaintiffs. The Court directs that the plaintiffs are justified in proceeding in respect of the Schedule A cattle on the basis that Carpenter is entitled to deal with the cattle because any security interest granted by Carpenter in respect of the cattle vested in Carpenter immediately before the appointment of the plaintiffs on 24 March 2015 pursuant to s 267 of the PPSA.

268 The Court also directs that Carpenter is justified in treating any net proceeds from any sale of the Schedule A cattle as Carpenter's property, subject to any claim to any further security interest with the requisite priority in respect of the cattle made by GG Feedlot being accepted or established.

269 Schedule E cattle is cattle to which only the Carpenter terms applied, meaning that there was no retention of title clause that applied to these cattle. There was no contradictor in respect of the Schedule E cattle.[250] The plaintiffs seek a direction pursuant to s 447D of the Act that they are justified:

(a) in proceeding on the basis that Carpenter is the absolute legal and beneficial owner of the Schedule E cattle on the basis that only Carpenter's terms were signed and applied to the purchase; and

(b) upon selling the Schedule E cattle, in treating any net proceeds from any sale of the cattle as Carpenter's property, subject to any further security claim made by GG Feedlot (including any issue as to priority) being accepted or established.

270 The vendors and agents that were party to the Schedule E cattle transactions were:

271 Carpenter submitted that, with some exceptions that I will set out below, the Carpenter terms were the only terms that were signed by the necessary parties and that were applicable to the Schedule E cattle.[251] The exceptions were as follows:

(a) three transactions involving Charles King where the Carpenter contracts were not signed by all of the vendor, vendor agent and Carpenter;

(b) two transactions involving CS where the Carpenter contracts were signed only by Carpenter;

(c) one transaction involving Mokoan where the Carpenter contract was signed only by Carpenter;

(d) one transaction involving Phil Woods where the Carpenter contract was signed only by Carpenter and Phil Woods;

(e) one transaction involving TDC Penola where the Carpenter contract was signed only by Carpenter and the vendor; and

(f) all transactions involving Pinkerton Palm, as the Carpenter contracts were not signed by the vendor agent.[252]

272 Carpenter submitted that in those transactions no other signed terms were found or appeared to be applicable, so the parties must be said to have adopted the Carpenter terms.[253] In respect of the transactions involving Pinkerton Palm, Carpenter submitted that solicitors for Pinkerton Palm have confirmed that the Carpenter terms applied.[254]

273 As there were no submissions or evidence to the contrary, I accept Carpenter's submissions that the Schedule E cattle transactions were governed by the Carpenter terms. Clause 4(l) and (m) of the Carpenter contract provided that:

Upon delivery of the Livestock, [Carpenter] shall have the right to enter the premises where the Livestock is held in order to inspect the Livestock and may, in its sole discretion, reject any Livestock that do not comply with terms of the Agreement: ("Inspection"). It shall be the responsibility of the Vendor and at the cost of the Vendor to remove the rejected Livestock. The Parties agree that the Livestock shall not be deemed accepted by [Carpenter] until Carpenter has carried out its Inspection.

Risk in the Livestock shall remain with the Vendor until [Carpenter] has completed the Inspection upon which point risk and title in the Livestock accepted by [Carpenter] shall pass to [Carpenter].

274 Carpenter submitted that inspection occurred by, at the latest, 3 March 2015.[255] By this time, title to the Schedule E cattle had passed regardless of whether the cattle were later the subject of a rejection email.[256]

275 Mr John Berkefeld, General Manager of Carpenter, deposed that on Carpenter's instructions the vendors and/or vendor agents delivered the cattle to one of GG Feedlot's feedlots between 18 and 21 February 2015.[257] Some cattle were rejected at the feedlot gate, but the others were accepted into the feedlot and were subjected to Carpenter's 'induction' and 'breeding soundness' testing at the feedlot.[258] Carpenter submitted that this testing process amounted to the Inspection referred to in cl 4(m) of the Carpenter contract.[259]

276 The defendants did not file any evidence or make any submissions to the contrary in relation to Inspection. I accept Mr Berkefeld's evidence as to delivery of the cattle to the feedlot and the testing that occurred there. I also accept Carpenter's submission that the testing conducted at the feedlot amounted to Inspection within the meaning of cl 4(m) of the Carpenter contract. Accordingly, under cl 4(l) of the Carpenter contract, title to the Schedule E cattle passed to Carpenter.

277 The Court will give the direction sought by the plaintiffs in respect of the Schedule E cattle.

278 The plaintiffs sought a direction that they are justified in proceeding on the basis that they have an equitable lien over the proceeds of the sold cattle for Universal Distributing[260] expenses.[261] In their Further Amended Originating Process the plaintiffs sought:

A direction pursuant to section 447D of the Act that the Plaintiffs are justified in proceeding on the basis that they are entitled to be indemnified for reasonable expenses incurred by them in the care, preservation and maintenance of Cattle A, Cattle B and Rejected Cattle and an equitable lien over Cattle A, Cattle B and Rejected Cattle and/or any proceeds of any sale of the said cattle to secure the same.[262]

279 At trial the plaintiffs said that they did not press the Court to make an order on this issue.[263] They were not asking the Court to determine whether they should be granted an equitable lien.[264] Rather, they were asking the Court for a direction in similar terms to that given by Robson J in Re Great Southern Managers Ltd (No 1).[265] In that case his Honour said:

Pursuant to s 424 of the Act, the first to fourth plaintiffs are justified in carrying on their duties as receivers and managers of the fifth plaintiff and proceeding on the basis that if they incur reasonable expenditure and reasonable remuneration in the care, preservation, protection, and/or realisation of the scheme property referred to in the paragraph above, they will be entitled to indemnify themselves for their expenditure out of the scheme property and the product thereof and be entitled to a lien over the scheme property and the product thereof to secure the same in priority to all other charges thereon.[266]

280 The plaintiffs said that the 'amount of that lien, whether it's made out, is necessarily going to be a separate question'.[267] For now, they simply seek a direction that they are justified in proceeding on the basis that they have a lien and that they are justified in acting accordingly.

281 Separately, in the 'Miscellaneous' section of the Further Amended Originating Process, the plaintiffs sought a direction that they:

...are justified, and otherwise acting reasonably, in asserting an entitlement to an indemnity secured by an equitable lien against the sale proceeds of Cattle A, Cattle B, Rejected Cattle and Cattle E for the payment of their costs, expenses and remuneration relating to:

(a) the care and maintenance of Cattle A, Cattle B, Cattle E and Rejected Cattle;

(b) all enquiries and assessments necessary to ascertain the ownership of and any other rights with respect to such cattle; and

(c) facilitating the sale of such cattle,

regardless of title or ownership.[268]

282 However, the plaintiffs submitted that this issue only becomes relevant in the event that Carpenter is found to have no title in respect of the cattle the subject of the proceeding.[269] The plaintiffs noted that s 443D confers on them a statutory lien out of the company's property.[270] Section 443D of the Act provides:

The administrator of a company under administration is entitled to be indemnified out of the company's property (other than any PPSA retention of title property subject to a PPSA security interest that is perfected within the meaning of the Personal Property Securities Act 2009) for:

(a) debts for which the administrator is liable under Subdivision A or a remittance provision as defined in subsection 443BA(2); and

(aa) any other debts or liabilities incurred, or damages or losses sustained, in good faith and without negligence, by the administrator in the performance or exercise, or purported performance or exercise, of any of his or her functions or powers as administrator; and

(b) his or her remuneration as fixed under section 449E.

...that [Carpenter] has title to the cattle the subject of the proceeding. In that event, the statutory lien will apply with respect to debts incurred by the Administrators and remuneration approved with respect to that cattle. If, contrary to the Administrators contention, any or all of the cattle is found not to be CIPL's property, the statutory lien will not be engaged.[271]

284 As with the first direction, the second direction sought by the plaintiffs does not require the Court to determine issues of quantum.[272]

285 DLS did not make any submissions in relation to the plaintiffs' claim for directions concerning an equitable lien.

286 CS and CSNM submitted that the s 443D statutory lien is not available against a perfected security interest in PPSA reservation of title property. Therefore any entitlement of the plaintiffs to be paid their costs and expenses must be in the nature of a 'Universal Distributors [sic] lien that are thrown against the fund recovered from the sale of all property whether subject to a security interest or not'.[273] I reject CS and CSNM's argument that the plaintiffs may only recover their costs and expenses through a Universal Distributing lien, because I have found that none of DLS, CS and CSNM has a perfected security interest in the cattle.

287 CS and CSNM also made submissions of a serious nature as to the conduct of the plaintiffs in the administration of Carpenter.[274] Essentially, they submitted that instead of attempting to seek creditors' agreement to proposed cattle sales, the plaintiffs should have approached the Court at the outset seeking directions under s 447D of the Act. What actually happened was that the plaintiffs delayed in approaching the Court and in this time they incurred 'very high agistment, veterinary and other costs', which costs were not reasonably and honestly incurred.[275] It was argued that this justified an order against the plaintiffs under s 447E of the Act.

288 At trial CS and CSNM said that it was not appropriate to consider the plaintiffs' conduct at this stage; it was a matter for after the Court has determined whether CS and CSNM are secured or unsecured parties.[276]

289 GG Feedlot objected to the giving of the direction concerning the equitable lien. At trial counsel for GG Feedlot submitted the following:

What I dispute is that the parties until now have always said GG Feedlot should not appear because we'll take the money from the proceeds of the sale and we'll put to the side and nobody's going to touch it.

...

And now they're saying, wait we'll take the funds associated with the upkeep of the cattle out of it first. That's a completely different scenario.

...

This is something that's to be determined in the judicial proceeding if they have such a lien. And if they have such a lien and if they can establish that that lien has priority, then indeed that should happen. But what my problem with the direction that they seek it now is it allows them to simply grab that money without a judicial determination that they have such a lien. That's not a problem.

My problem is not that if they can establish they that lien and while my Peter, my learned friend, can do that in a separate application, that they're not entitled to take the money. My problem is that just until now it was always said we'll put the proceeds aside so they cannot come and say, well we take whatever we want from the proceeds anyway.[277]

290 The plaintiffs responded to GG Feedlot's concerns by saying that the purpose of the lien is to 'provide the degree of comfort that in moving forward with proceeding to agitate for a lien, we're acting appropriately. That's all it is. It's not deciding the lien and it's not trying to go through the backdoor'.[278]

291 I turn now to the question of whether the Court should give the direction sought in paragraph 11 of the Further Amended Originating Process. I note that the Court has found that none of DLS, CS and CSNM has a perfected security interest in the cattle, and has given the plaintiffs directions that, subject to resolution of GG Feedlot's claims, the plaintiffs are justified in treating any net proceeds from the cattle sales as Carpenter's property. Given that it is possible that GG Feedlot will establish that it has a perfected security interest in some of the cattle, it is understandable that the plaintiffs are concerned about their entitlement to an equitable lien.

292 It is not necessary in light of my findings in relation to the sale proceeds of Schedules A, B, D and E cattle for the Court to determine the question of an equitable lien in respect of those cattle, except in the case of GG Feedlot.

293 GG Feedlot claims it has a perfected security interest in certain of the cattle, and it does not concede that the plaintiffs are entitled to an equitable lien. If GG Feedlot is successful in its claim, the plaintiffs may seek the equitable lien at that time. If GG Feedlot is unsuccessful, the plaintiffs will not need to seek an equitable lien.

294 Until GG Feedlot's claim is resolved, the plaintiffs have the comfort of the directions given by the Court in paragraphs 242, 259, 267, 268, 277. I will not make any ruling in relation to any claim for an equitable lien until and unless GG Feedlot is fully heard on its application.

295 As to the plaintiffs' conduct, in my opinion, responsible and prudent efforts have been made to ensure the wellbeing of the cattle in question.

296 I do not consider that, on the evidence, the actions of the administrators have been anything other than responsible, and they have certainly not been profligate. It would be a grave situation had they not properly and diligently attended to the health and welfare of the cattle, necessarily incurring expense to do so.

297 Further, the administrators were naturally charged with the task of assessing the ownership of the cattle and to make such inquiries and conduct such investigations as was necessary to determine those questions. There is no doubt that such actions, such as caring for, and looking after the cattle and incurring expense to ascertain their true ownership were necessary. These tasks inevitably, in my opinion, take longer than most parties would wish. However, this, in itself, does not make their actions unreasonable.

298 Further, the sale of cattle necessarily involved costs which were, in my opinion, reasonably and responsibly incurred.

299 I will hear the parties on the question of costs and the form of orders.

[4] Plaintiffs' Outline of Submissions, [67(a)]; T85:8.

[5] Plaintiffs' Outline of Submissions, [67(b)].

[7] [2004] HCA 52; (2004) 219 CLR 165, [40]-[45].

[11] Plaintiffs' Outline of Submissions, [42].

[13] [2009] VSCA 153; (2009) 25 VR 251 ('McMahon').

[15] [2009] VSCA 153; (2009) 25 VR 251, [39] (Nettle JA, with whom Neave and Dodds-Streeton JJA agreed).

[16] Plaintiffs' Outline of Submissions, [42]; T253:20.

[17] [1979] 1 WLR 401.

[18] Plaintiffs' Outline of Submissions, [69].

[21] (2011) 82 ACSR 193 ('Dwyer'). See Plaintiffs' Outline of Submissions, [44]-[47].

[23] Outline of Submissions of DLS, [6].

[24] At trial DLS explained that there may be one or two instances where the DLS contract was not signed by all the parties: T143:11; T168:12.

[25] Outline of Submissions of DLS, [7].

[27] Outline of Submissions of DLS, [8].

[28] T187:4. Put another way, they were signed so closely to each other that it does not matter which was signed first: T245:6.

[29] Outline of Submissions of DLS, [9]. DLS relied on Mr Bond's affidavit affirmed 24 June 2015, [10], in which Mr Bond deposed that Carpenter instructed him to have the Carpenter contracts prepared and signed, and that he was required to complete a record of all purchases as he was paid on a per head basis: T162:22.

[36] Outline of Submissions of DLS, [17].

[38] Outline of Submissions of DLS, [18]-[19]; T177:8, T178:27.

[39] [2005] VSCA 29.

[40] Outline of Submissions of DLS, [23]; T150:26.

[43] [2009] VSCA 153; (2009) 25 VR 251, [39] (citations omitted); T160:1.

[45] Outline of Submissions of DLS, [25(a)].

[53] Plaintiffs' Outline of Submissions, [80]; Outline of Submissions of DLS, [42(b)].

[54] (2014) 101 ACSR 629 ('Appleyard').

[55] Ibid [8], [13] (citations omitted).

[57] (2015) 321 ALR 181 ('Elkerton').

[58] Plaintiffs' Outline of Submissions, [78]; T87:1.

[59] Plaintiffs' Outline of Submissions, [80].

[61] Plaintiffs' Outline of Submissions, [81].

[70] Plaintiffs' Outline of Submissions, [84].

[71] Affidavit of Scott Lord, sworn 28 July 2015, [56]-[59].

[78] Plaintiffs' Outline of Submissions, [51]; Outline of Submissions of DLS, [42(a)].

[79] (2013) 283 FLR 122.

[80] Ibid [5]; Albarran v Queensland Excavation Services Pty Ltd [2013] NSWSC 852; (2013) 277 FLR 337 (Albarran), [32].

[81] See Bruce Whittaker, Review of the Personal Property Securities Act 2009: Final Report, 27 February 2015, [8.7.1]-[8.7.3] and [9.2.2]; Albarran [2013] NSWSC 852; (2013) 277 FLR 337, [70]-[72]. In Canada there are provisions similar to s 267 of the PPSA, for instance s 20(2) of the Saskatchewan Personal Property Security Act 1993, but I am unaware of any provisions equivalent to s 588FL of the Act. Broadly, s 267 and s 20(2) deal with security interests unperfected at the date of an insolvency event. The important times in those sections are the date of the insolvency event and the date of registration. The sections do not turn on the date the relevant security agreement came into force, therefore cases considering those sections will not assist in the determination of this issue. There are no provisions in New Zealand equivalent to either s 267 or s 588FL.

[82] (2015) 321 ALR 181, [17], [19].

[85] See Norman v Federal Commissioner of Taxation [1963] HCA 21; (1963) 109 CLR 9, 26 (Windeyer J); Pacific Brands Sport & Leisure Pty Ltd v Underworks Pty Ltd [2006] FCAFC 40; (2006) 149 FCR 395, [32], [42]-[43] (Finn and Sundberg JJ).

[89] (2015) 321 ALR 181, [19].

[90] Plaintiffs' Outline of Submissions, [59].

[92] Plaintiffs' Outline of Submissions, [60].

[97] Plaintiffs' Outline of Submissions, [65].

[100] The plaintiffs' submission that the front side of the CSNM did so provide appears to be in error: Plaintiffs' Outline of Submissions, [66]. The front side of the CSNM contract does not contain such a term.

[103] Charles Stewart Group Submissions, [56].

[106] Charles Stewart Group Submissions, [52].

[112] Charles Stewart Group Submissions, [59].

[115] Affidavit of Warren Christopher Bond affirmed 24 June 2015, [6], [9].

[116] Affidavit of Warren Christopher Bond affirmed 25 July 2015, [2]-[3]. Paragraph [4] of the affidavit was struck out after the Court upheld the plaintiffs' objection to it.

[117] Affidavit of Phillip Justin McVilly sworn 19 June 2015, [4].

[119] Affidavit of Corey Daniel Baulch affirmed 19 June 2015, [8]-[9].

[120] Charles Stewart Group Submissions, [59] (emphasis added).

[122] Plaintiffs' Outline of Submissions, [66].

[125] Plaintiffs' Outline of Submissions, [94].

[127] Plaintiffs' Outline of Submissions, [95]-[96].

[133] T92:5; Plaintiffs' Outline of Submissions, [98].

[134] Charles Stewart Group Submissions, [72]. There are two paragraphs numbered [72]. This footnote refers to the paragraph [72] on page 24.

[135] Ibid [73]. This footnote refers to the paragraph [73] beginning on page 24.

[136] Ibid [72]. This footnote refers to the paragraph [72] on page 24.

[138] Charles Stewart Group Submissions, [76].

[142] PPSA s 267(1)(b)(ii) (emphasis added).

[143] [2014] VSCA 326; (2014) 292 FLR 114.

[145] (2014) 99 ACSR 214.

[147] Ibid [12]-[14] (emphasis added).

[149] [2013] NSWSC 852; (2013) 277 FLR 337, [70]-[72] (emphasis added).

[150] Personal Property Security Act, SBC 1989, c 36, s 20(b)(i) has been repealed and replaced with Personal Property Security Act, RSBC 1996, c 359, s 20(b)(i). The wording of the section remains the same.

[159] [1982] HCA 29; (1982) 149 CLR 537.

[170] Charles Stewart Group Submissions [69]-[72], [74]. This footnote refers to the paragraphs [71]-[72] on pages 22-23.

[179] Affidavit of David Michael Stewart, sworn 19 June 2015, [38].

[180] Charles Stewart Group Submissions, [94].

[182] N Seddon, R Bigwood and M Ellinghaus, Cheshire & Fifoot Law of Contract (LexisNexis Butterworths, 10th Australian ed, 2012), 254 [5.25].

[184] [1982] HCA 29; (1982) 149 CLR 537 (Perry), 552.

[186] See Prospect Resources v Molyneux [2014] NSWSC 1096, [78]; Fowler v Commissioner of Taxation [2013] FCAFC 69; (2013) 212 FCR 149, [149] (Gordon J).

[187] [2004] HCA 52; (2004) 219 CLR 165, [40].

[189] Affidavit of David Michael Stewart dated 19 June 2015, [16].

[199] Charles Stewart Group Submissions, [96(b)].

[205] Charles Stewart Group Submissions, [99].

[206] Plaintiffs' Outline of Submissions, [104].

[209] Ibid [107]. Carpenter also relied on clause 4 of the credit application form which referred to the possibility of registration on the PPSR. The credit application form demonstrated a consciousness of the PPSA, at least in general terms: T82:20.

[210] Plaintiffs' Outline of Submissions, [108].

[214] Plaintiffs' Outline of Submissions, [111].

[217] Plaintiffs' Outline of Submissions, [113].

[219] Re Enviro Pallets (NSW) Pty Ltd [2013] QSC 220.

[220] Re Southern Engineering Services Pty Ltd [2014] NSWSC 1882.

[221] [2015] 2 Qd R 381.

[222] Re Apex Gold Pty Ltd [2013] NSWSC 881.

[223] (2014) 101 ACSR 629, [32]. See also in [28] the summary of cases where extensions have been granted despite the grantor's solvency being dubious.

[224] (2014) 101 ACSR 629, [9]-[10]. (Citations omitted.)

[225] [2013] NSWSC 32, [15].

[226] Affidavit of David Michael Stewart sworn 19 June 2015, [25], [27]-[28], [30]. (Emphasis added.)

[227] In the matter of Barclays Bank plc [2012] NSWSC 1095, [14].

[228] In the matter of Black Opal IP Pty Ltd Limited [2013] NSWSC 1225, [8].

[230] (2014) 101 ACSR 629, [29]. See also [28].

[232] [2013] NSWSC 32, [20]-[21]. (Citations omitted.)

[233] (2014) 101 ACSR 629, [26]-[31], particularly [27]-[28].

[234] [2014] NSWSC 1909, [13].

[235] (2014) 101 ACSR 629, [13]. See also [27].

[237] T60:15; Plaintiffs' Outline of Submissions, [134].

[238] Charles Stewart Group Submissions, [72].

[240] Plaintiffs' Outline of Submissions, [21].

[241] Outline of Submissions of DLS, [7].

[242] Charles Stewart Group Submissions, [24].

[243] Affidavit of Warren Christopher Bond affirmed 24 June 2015, [12]-[13].

[244] Affidavit of David Michael Stewart sworn 19 June 2015, [36].

[245] Plaintiffs' Outline of Submissions, [138].

[248] Plaintiffs' Outline of Submissions, [28]-[29].

[249] Affidavit of Matthew James Donnelly sworn 22 May 2015, exhibit MJD-29; Plaintiffs' Outline of Submissions, [53]-[54].

[250] CS did not make any submissions in relation to the Schedule E cattle transactions in which it was involved.

[251] Plaintiffs' Outline of Submissions, [10].

[257] Affidavit of John Edward Berkefeld sworn 3 July 2015, [53].

[258] Ibid [53], [55], [57]-[59].

[259] Plaintiffs' Outline of Submissions, [19].

[260] Re Universal Distributing Co Ltd (in Liq) [1933] HCA 2; (1933) 48 CLR 171.

[261] Plaintiffs' Outline of Submissions, [124].

[262] Further Amended Originating Process, [4].

[265] [2009] VSC 642.

[268] Further Amended Originating Process, [11].

[269] Plaintiffs' Outline of Submissions, [125].

[273] Charles Stewart Group Submissions, [99].